HMRC has made a dramatic U-turn on their recent decision to classify double cab pick-up trucks (DCPUs) as ‘cars’ for employment benefit and capital allowance purposes. Had it not changed course, some business owners may have faced huge increases in tax liabilities.
The proposed change in tax treatment and potential impact on businesses received major pushback — particularly from the farming and motoring industry. HMRC acknowledged the update, ‘could have an impact on businesses and individuals in a way that is not consistent with the government’s wider aims to support businesses including vital motoring and farming industries’.
The reversal of the decision is welcome news for all business owners who may otherwise have seen a significant rise in their tax bills.
As a reminder on what DCPUs qualify as a ‘van’, along with the benefit-in-kind (BiK) and capital allowances treatment rules, we’ve set out details of these below:
Employment benefits
When calculating the taxable benefit on employer-provided vehicles, the amount of benefit depends on whether the vehicle in question is classified as a van or a car. Under the BiK rules, a van is ‘a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.’ As DCPUs can be considered multipurpose vehicles, equally suitable for carrying goods and passengers, the rules extend to say that any DCPU with a gross payload capacity of 1,000kg or more, is classified as a van.
The taxable benefit of a car is calculated based on the list price when new and the level of carbon dioxide emissions, whereas the taxable benefit of a van is calculated on a flat rate. The rules on private use also differ, with no taxable benefit arising for insignificant private use of a van. On the other hand, any private use of a company car, no matter how insignificant, will trigger a taxable BiK.
The decision to retain the difference in treatment means that company car drivers will still have access to the low BiK tax rates offered by DCPUs for the foreseeable future.
Capital allowances
For business owners using DCPUs in their business, there are generous capital allowances available. Vans will usually attract 100% Annual Investment Allowance, resulting in a full deduction from profits in the tax year the van is purchased.
The deduction can be particularly helpful for cashflow purposes, given payment of the van will usually be spread over several years. The capital allowances available on cars are less generous and attract lower rates of relief (with the exception of zero emission vehicles).
If you need any further information or advice on employment benefits for your business, please contact Chantelle Martinez: chantelle.martinez@ct.me.
