Contractors, HMRC just U-turned double cab pick-ups being taxed like cars from July 2024

It was the early Valentine’s Day gift that nobody wanted. On February 12th 2024, HMRC announced plans to tax Double Cab Pick-Up trucks with a payload greater than one tonne as a van -- not a car.

HMRC and DCPUs...

This change would have had a knock-on effect on the pick-up trucks market, and therefore create a slow in sales, but it would also have cost the self-employed and business owners like contractors more money, writes Dan Mepham, boss of SG Accounting.

So what, exactly, was going to change with the taxation of Double Cab Pick-Ups (DCPUs) and what impact would the HMRC announcement have had? The eagle-eyed will have noticed I used the phrase “was going to" because, in a U-turn we can all get behind, HMRC has called the whole thing off.

History

For the past couple of decades, private individuals have been able to run pick-ups in exactly the same way as company cars, and therefore pay a much smaller amount in Benefit in Kinds (BiK) than if they were running a regular saloon, SUV, or hatchback.

But on February 12th 2024, HMRC announced in note EIM23151 that it will be rescinding the tax break on all new pick-ups that were purchased, leased, or ordered from July 1st 2024.

Tax charges on double-cab pick-ups – why the benefit was being taken away

For a long time, pick-ups were always placed in the middle ground between passenger cars and vans. They have been (and still are) popular within the farming industry and among self-employed traders (such as builders, electricians, and plumbers).

Forming an integral part of farmers’ or traders’ work equipment, HMRC have always considered such vehicles with a payload in excess of one tonne to be commercial vehicles, rather than classed as private cars.

This treatment by HMRC has had a positive impact on the automotive industry, with the double-cab variants which have an extended cabin allowing for two rows of seats, becoming more and more desirable.

What HMRC said

But in its Feb 12th announcement, HMRC signalled that these types of vehicles were increasingly being used for private usage, and therefore should be taxed accordingly.

The Revenue’s Feb 12th announcement was that:

“From 1 July 2024, HMRC will no longer interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes. This VAT approach for double-cab pick-ups differentiated based on payload, with anything under one tonne classed as a car, and anything a tonne and over as a van. This rule was replicated as a pragmatic way of resolving the primary suitability and classification of double cab pick-ups.”

Our original advice went a little something like this...

The advice by us accountants -- issued as a result of the above from HMRC -- was to purchase a double-cab prior to the deadline of July 1st 2024 to avoid the impending tax rule.

If that advice was followed you would’ve been able to pay the Benefit-in-Kind (BiK) at the lower rate until April 5th 2028. You could also have stayed with a single-cab pick-up which HMRC class as a “construction primarily suited for the conveyance of goods or burden.”

But now that HMRC has U-turned its Feb 12th announcement, this advice no longer applies.

The predictions

It was predicted that the UK’s pick-up market would undergo huge change in the upcoming years, with sales of double-cab pick-ups experiencing a surge up until July 1st, then reduce significantly thereafter.

With electric pick-up trucks soon on their way to the UK, even lower BiKs are on the horizon as company electric vehicles pay less in BiK charges.

Why the U-turn from HMRC?

On February 19th, 2024, HMRC said they have listened closely to the farming and motoring industries since its announcement on the 12th.

HMRC also said a 2020 court decision (the basis for them moving to tax DCPUs as cars), and their resultant guidance update, could potentially have a negative impact on individuals and businesses. The tax department said such an impact wouldn’t be consistent with the government’s wider aims to support businesses moving forward, which includes vital motoring and farming industries.

So, Double Cab Pick-Ups will therefore continue to be treated as goods vehicles (not as cars) for tax purposes, meaning, in HMRC’s words, “businesses and individuals can continue to benefit from…[their] historic tax treatment.”

New legislation is promised to keep DCPUs in the tax-friendly lane

Featured in the Feb 19th announcement was Treasury minister Nigel Huddleston, who said: “We will change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.”

So, legislation will be passed to ensure DCPUs are continued to be treated as goods vehicles for tax purposes.

Personally, I’m rather relieved – because I quite like the look of the new Ineos Grenadier Quartermaster!  

What next?

As always it’s advisable for business owners to speak to their dedicated accountant for advice on tax, before making any significant purchases, to ensure they fully understand their tax responsibilities.