Double cab pick-ups to be classed as company cars from July 1

Due to new tax guidance released by HMRC, double cab pick-ups will be categorised as corporate cars as of July 1, 2024. All double-cab pick-ups ordered after July 1st are subject to the new regulations; those already in the fleet or those ordered before to July 1st will continue to be classified under the current guidelines through April 2028.

Fleets received a warning last year that HMRC was looking into vehicle classification for benefit-in-kind (BIK) tax purposes, and that they might be “sleepwalking into a significant tax liability.”

It comes after years of discussion about laws that specify how a vehicle is taxed depending on whether it is a company car or a van.

One of the most prominent cases included Coca-Cola, in which HMRC successfully argued that the company’s first- and second-generation VW Transporter T5 Kombis and Vauxhall Vivaro were automobiles rather than vans.

“An area of company car taxation that has been plagued by technical arguments for some time is now finally clear,” AFP’s Matt Hammond

Fleets will suffer financially from the decision to automatically designate double cab pick-ups as company vehicles since automobiles are more costly than vans in terms of income tax and national insurance (NIC); this also applies to any related fuel benefits that may be offered.

Additionally, it will result in an annual increase of hundreds of pounds in the benefit in kind that employees pay. As of right now, a fixed reward of £3,960 applies to every pick-up (see table below).

In especially in rural areas and the construction industry, double cab pick-ups are essential business tools for many enterprises and sole proprietors throughout Britain, according to Mike Hawes, chief executive of the automotive trade association, the Society of Motor Manufacturers and Traders (SMMT).

“Many may find them unaffordable as a result of HMRC’s decision to tax them as automobiles rather than business vehicles for benefit-in-kind (BIK) purposes, which will result in large cost increases.

“The decision could potentially impede the market’s overall progress towards decarbonisation, as companies are likely to maintain their older fleets longer.”

“There is insufficient time for industry to adapt to such a major policy change,” he continued, “and the sector believes that it would be simpler and still fairer to use a vehicle’s type approval as the basis for all tax purposes.” The new rules are set to take effect in July.

According to the updated guidance, which HMRC released this week, starting in July 2024, HMRC will no longer interpret the laws defining cars and vans for tax purposes in a way that is consistent with definitions used for value-added taxation.

The payload of a double cab pickup truck was the basis for this VAT strategy, which categorised anything under one tonne as a car and anything above a tonne as a van. It claims that this regulation was duplicated as a “pragmatic way” to address the primary issues of double cab pickups’ appropriateness and classification.

It did note, though, that this “finely balanced test” conflicts with the decision made by the Court of Appeal in the Coca-Cola case.

This proved that judgements made under Section 115 ITEPA 2003’s principal appropriateness test shouldn’t be made by a small margin.

It also made it clear that cars should be assumed by default in circumstances that are perfectly balanced and in where there is no clear preference for one mode of transportation over another.

According to the Employment Income Manual, classifying double cab pick-ups going forward will therefore require evaluating the vehicle as a whole at the time of release to ascertain whether the vehicle construction has a primary suitability in accordance with the two-part test.

“This finally brings clarity to an area of company car taxation that has been dogged by technical arguments for some time and, in some respects, removing that degree of confusion is very welcome,” stated Matt Hammond, deputy chair of the Association of Fleet Professionals (AFP).

“We appreciate and think it is fair that HMRC has instituted a transition period, which will allow manufacturers to align their model ranges with the new regulations and fleets to make new arrangements.”

“It’s understandable that some fleets and drivers will feel that certain vehicle options are unfairly removed, but aligning the regulations with VAT makes sense.”

Tax ramifications
Employees will also have to pay additional tax since practically all double cab pick-ups will be considered corporate vehicles and subject to BIK as of July 1.

To prevent companies and employees from paying more taxes on cars that are already in the fleet or are on order, HMRC has implemented transitional provisions (see below).

“The most common double cab pick-up in the UK is the Ford Ranger with a list price of circa £60,000 and CO2 emissions of over 200g/km putting it squarely in the 37% tax bracket meaning a BIK of circa £22,200 a year leading to employee tax of £8,880 a year for a 40% taxpayer or £13,320 a year at 60% tax or £1,110 a month,” stated John Messore, joint owner of Innovation Tax and Mileage Consulting Group, in an interview with Fleet News.

“That’s a combined benefit of £32,486 if free private fuel is also provided (which historically it probably should be as it is currently a no brainer at such low levels of tax),” he went on.

“A higher rate taxpayer will pay a total of £12,994 in annual taxes, while the employer will incur an additional £4,483 in Class 1A NIC costs.”

According to the existing regulations, if the pick-up’s payload is one tonne or more, it is taxed as a van benefit in kind, which entails £3,960 in benefit for the vehicle and £757 in fuel BIK. He clarified this.

Under the new regulations, there will be an additional £15k in tax and NIC annually, which HMRC claims is the proper default position in light of the Coca-Cola judgement.

“This could be detrimental to the double cab market because the tax regulations might deter these kinds of cars in the future.”

He went on, “HMRC has stated that it would only modify the regulations starting on July 1, 2024, therefore you must order the car before July 1 if you wish to benefit from the previous concession.

“That they are altering this concession in the middle of a tax year is disheartening. A better course of action would have been to hold off until the beginning of a new tax year, say April 6, 2025.

“What happens if a van is replaced before July 1st but private fuel is only provided after July 1st? Additionally, the guidance is silent on fuel.”

Additionally, Messore noted that employers should exercise caution when it comes to optional remuneration arrangements (OpRA), emphasising that these types of agreements do not lend themselves to salary sacrifice.

He clarified that an employee car ownership scheme (ECOS), in which there is a credit sale agreement with a fixed arm’s length buyback price, would be a better fit for them.

Since there is a real transfer of ownership to the driver, the standard car BIK regulations do not apply, he stated, “there are still significant savings to be made by entering ECOS.”

According to the advise, there would be additional complexity and ambiguity as the VAT regulations differ from the income tax regulations.

The input VAT on leasing costs is limited to 50% if the vehicle is classified as a car for VAT purposes (but not maintenance costs).

There is still a restriction, however it is centred on private use if double cab pickups are still classified as vans for VAT purposes.

For instance, you can only recover 20% of the input VAT if the van is used for commercial purposes and for private purposes 80% of the time. Mileage logs will still have to be maintained.

Beginning on July 1, the great majority of double cab pick-ups will also be classified as automobiles for capital allowance reasons.

Double-cab pick-up Before (£) After (£) Difference (£)
Van BIK3,96022,20018,240
Fuel BIK75710,2869,529
Total BIK4,71732,48627,769
Employee tax at 40%1,88712,99411,108
Employer NIC at 13.8%6514,4833,832
Additional tax and NIC cost £14,940

Transitional arrangements 
Employers that ordered, leased, or bought a double cab pick-up before July 1, 2024, will be subject to transitional arrangements, allowing them to continue using the current mode of operation until April 5, 2028, or until the vehicle is disposed of or the lease expires.

Prior to July 2024, the situation is still as it was.

The following are instances provided by HMRC, all of which concern double-cab pickup trucks that are made available to workers but aren’t built particularly for the transportation of cargo or people.

Example 1: On September 14, 2024, Employer A bought a double cab pickup truck. In this scenario, the vehicle would be categorised as a car and a car benefit tax would be incurred because purchases made on or after July 1, 2024, would be subject to the new regulations.

Example 2: On April 10, 2024, Employer B rented a double cab pickup truck. Because this was leased before to July 1, 2024, Employer B is still subject to the earlier of the lease’s expiration date or April 5, 2028.

Example 3: On July 10, 2023, Employer C bought a double cab pickup truck. On November 1, 2024, this was then exchanged in for an other double cab pickup truck.

Until November 1, 2024, when the trade-in date occurs, Employer C’s first car is subject to the prior regulations. The new double cab pickup will be considered a vehicle under the new regulations as it was bought after July 1, 2024, and a car benefit charge will apply.

Example 4: On January 5, 2024, Employer D made an order for a double cab pick-up; however, it wasn’t delivered to the employer until September 2, 2024.

Because the agreement was signed prior to July 1, 2024, Employer D is still subject to the sooner of April 5, 2028, lease expiration, or disposal.