Turning Full Circle: HMRC Double Cab Pickup Tax Treatment Update

HMRC Reverses Tax Changes for Double Cab Pickups

On 19 February 2024, HMRC made a swift U-turn on the tax treatment of double cab pickups (DCPUs), reversing the guidance issued just a week earlier on 12 February 2024. The initial update followed a 2020 Court of Appeal judgment, but the latest Autumn Budget now confirms significant changes coming into effect from 1 April 2025.

From this date, double cab pickups with a payload of one tonne or more will no longer be classified as commercial vehicles. Instead, they will be treated as cars for capital allowances and Benefit-in-Kind (BIK) purposes.

Key Implications for Businesses Before and After April 2025

Current Tax Treatment for DCPUs (Until 31 March 2025)

• Capital Allowances: Businesses purchasing DCPUs before 1 April 2025 can still claim 100% capital allowance tax deductions under either Full Expensing (for new and unused vehicles) or the Annual Investment Allowance.
• VAT Recovery: VAT can potentially be reclaimed, provided specific conditions are met.

Benefit-in-Kind (BIK) for Employees

• For DCPUs acquired before 1 April 2025 and used privately by employees, the reduced commercial vehicle BIK rate applies. For 2023/24, this is £3,960 multiplied by the employee’s marginal tax rate.
  
• Transitional BIK arrangements allow employers to use the previous treatment for DCPUs purchased, leased, or ordered before 6 April 2025, until the earlier of:
  
  • Disposal of the vehicle
  • Lease expiry
  • 5 April 2029

Post-2025 Tax Treatment for DCPUs

For DCPUs purchased after 1 April 2025, or after the transitional guidance ends, BIK rates will align with other company cars. Rates will depend on CO2 emissions and fuel type.

Uncertainty Around VAT Treatment

The VAT treatment of double cab pickups remains uncertain, despite the revised definitions for direct tax purposes.

Currently, VAT treatment is governed by an informal “administrative agreement” between HMRC and various trade bodies and associations. These agreements aim to simplify and standardise VAT application for specific transactions, providing clarity for businesses.

Examples of Current VAT Agreements

• Lease Rental Fees: Businesses can reclaim 50% input VAT on lease rental fees for certain vehicles.
• Caravan Goods: The valuation of removable goods in a caravan also falls under a simplified administrative agreement.

For DCPUs, Agreement 23 defines their classification by payload for VAT purposes. Crucially, it includes a clause stating:

“This agreement will be reviewed in the event of a significant change of circumstances, for example, a change of VAT law or significant changes in the market.”

Will VAT Follow Direct Tax Definitions?

Despite the significant changes in the direct tax treatment of DCPUs, no updates have been issued for their VAT classification. This creates the possibility of a disparity:

• Direct Tax Treatment: From 1 April 2025, DCPUs with a payload of one tonne or more will be treated as cars.
• VAT Treatment: DCPUs could still be classified as commercial vehicles, allowing input VAT recovery.

This potential anomaly may undermine HMRC’s intention to discourage DCPU ownership through less favourable tax treatment. Allowing businesses to reclaim VAT on vehicles now treated as cars for direct tax purposes would present a conflicting tax advantage.

What to Expect

While VAT has historically deviated from direct tax logic, the current misalignment might prompt HMRC to revise VAT agreements for DCPUs. Any future updates to Agreement 23 or other related guidance could significantly impact businesses relying on VAT recovery for these vehicles.

Get in Touch

For now, businesses should remain vigilant and prepared for possible VAT changes. Our Tax and VAT experts at Rayner Essex can provide advice to ensure you stay compliant while optimising your tax position amid these uncertainties. Please feel free to get in touch to discuss your personal circumstances and for further advice  on tax planning that will assist you in navigating these changes.