Changes to double cab pick-ups

Following a series of U-turns on the taxation class of Double Cab Pick-ups (DCPU) earlier this year, the chancellor announced in the autumn budget that DCPUs are to be taxed as cars, rather than vans from 1 April 2025 for Corporation Tax and 6 April 2025 for income tax purposes.

Businesses and individuals will be impacted by this change if they claim certain tax reliefs and allowances on these vehicles, with the main changes highlighted below:

Currently, DCPUs are classified as vans. Vans benefit from 100% capital allowances, meaning tax relief is available in full in the year of purchase. If the DCPU is available for private use by a partner or sole trader, the 100% claim in year one is restricted by the percentage of private use.

When DCPUs are reclassified as cars, 100% tax relief upfront on the purchase will not be available. Instead, the allowances available are based on the vehicle’s CO2 emissions and unless we’re dealing with a very low emission, zero emission or electric vehicle, the capital allowance claim will be 6% per annum on a reducing balance basis, restricted for any private use.

This change means it will take far longer to receive the tax relief on the purchase.

Where an employee (including a director) is supplied with a DCPU and the vehicle is available for personal use, this can give rise to a benefit in kind (BIK). A BIK is treated as additional taxable income for the employee and the employer is required to pay additional national insurance (NI) on this benefit - currently 13.8%, increasing to 15% from April 2025.

At present, DCPUs are classified as vans. Firstly, this means there is not a taxable benefit if the private use incurred by the employee is insignificant. Secondly, if there is private use, vans currently have a fixed taxable value for BIK purposes, which in 2024/25 is £3,960.

In April 2025, as the DCPU will be reclassified as a car, any level of private use (or by just being available for private use) will mean the vehicle becomes a taxable benefit.

BIK rates for cars are considerably higher than vans. The BIK it is based on the vehicles list price (not second-hand value) and the cars CO2 emissions. Most DCPUs attract the highest CO2 emission rate of 37%.

A DCPU with a list price of £40,000, with CO2 emissions of 230g/km, will have a taxable value of £14,800 in 2024/25. This is a considerable increase compared to £3,960 as a van. The employee will pay income tax on this benefit based on their own income tax bracket and the employer will be liable to employers NI (soon to be 15%) on the taxable value.

There are also additional charges for the provision of private fuel.

The good news is, there are some transitional rules. If the DCPU is purchased before April 2025, the current BIK treatment will be in place until the earlier of disposal, lease expiry or 5 April 2029.

Although the income tax and corporation tax rules are changing for DCPUs, the VAT rules are not. Whether VAT can be reclaimed or not is determined by the payload of the vehicle. If the payload is over 1 tonne, VAT can be reclaimed on the vehicle. However, private use should be considered.

Caution needs to be taken where a hardtop is fitted to a DCPU as this can reduce the payload to under 1 tonne, resulting in the VAT becoming unclaimable.

Businesses which heavily rely on DCPUs will feel a significant impact by these changes. Considerations should be to:

1. Look at alternatives, such as single cab pickups, 2-seater vans, low emission/electric alternatives

2. Purchase/renew the lease and/or order a double cab pick-up before April 2025

3. Limit private use to business use only. Pool cars which are strictly business use and stay on business premises overnight, receive more favourable tax allowances.

If you would like to talk through how the changes impact you, please do get in touch.