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Is 1 July 2024 the end of the road for the double cab pick-up?

The double cab pick-up has become popular on many British farms, often replacing the Land Rover Defender as the farm vehicle of choice. In many cases, this is simply because currently double cab pick-ups with a payload of more than a tonne have been classified as a commercial vehicle and therefore taxed favourably in terms of both capital allowances and employment taxes.

However, all is about to change. From 1 July 2024, HMRC have amended the legislation and these vehicles will now, in most circumstances, be deemed to be cars. This will in turn immediately remove the favourable tax treatments available.

Capital allowances

Under current legislation, double cab pick-ups as a commercial vehicle qualify for Annual Investment Allowance (AIA) meaning that taxable profits will be reduced by 100% of the cost of the vehicle in the year of purchase. This can create quite a significant tax saving, given the average list price for a new double cab pick-up is typically around £60,000.

From 1 July 2024, due to HMRC’s reclassification from a van to a car, the AIA will no longer be available on the acquisition of these vehicles. Instead, a business will only be able to claim standard capital allowances and, because of the generally very high CO2 emissions, the rate of capital allowances available will reduce from 100% to 6% in the year of acquisition.

Capital allowances at 6% can then continue to be claimed, on a reducing balance basis, whilst the vehicle is a business asset.

Transitional rules

HMRC have announced transitional rules that will apply up until the 30 June 2024. These rules will apply where a double cab pick-up is purchased before 30 June 2024 or if a contract is entered into before 1 July 2024 and the expenditure is incurred before 1 January 2025.

The transitional rules will apply the previous legislation and the double cab pick-ups will be treated as vans for capital allowances purposes, therefore obtaining the more favourable tax treatment.

Arguably the availability of capital allowances is just a timing issue. However, at a time where cash is tight for many farmers, this will have an impact on future tax bills especially if a vehicle (on which capital allowances were claimed) is traded in against the new vehicle giving rise to a balancing charge.

Benefit in kinds

Of arguably more significance will be the increase in the cost of benefit in kind tax arising for such vehicles.

Benefit in kind arises where companies own double cab pick-ups and a director or employee uses the vehicle privately. Under the current legislation, whilst the vehicles are classified as vans, the benefit arising has been calculated at a flat rate – £3,960 for the double cab pick-up and £757 if fuel is provided.

The benefit of £3,960 and £757 would create a tax liability for a 40% taxpayer of £1,887.

Under the new legislation, where the double cab pick-ups are classified as cars, the benefit in kind will increase significantly. This is because benefit in kinds on cars are not calculated using a flat rate. They are calculated on a formula based on the list price of the vehicle when brand new, even if purchased second hand, which is multiplied by a percentage based on the level of CO2 emissions of the vehicle.

As you can imagine, typically neither the list price or level of CO2 emission of these trucks are low. By way of example, if we use the £60,000 average list price of a double cab pick up which has CO2 emissions of over 200g/km then the benefit in kind would be £22,200. If fuel is provided there will be an additional benefit of £10,286.

The benefit of £22,200 and £10,286 would create a tax liability for a 40% tax payer of £12,994. This would be an increase of £11,107 compared to the current legislation. Quite a sting in the tail!

In addition to the tax on the employee or director, where a benefit in kinds arise the company has to pay class 1A national insurance of the value of the benefits at 13.8%.

In our example, the class 1A national insurance due under the current legislation would be £651 and under the new legislation it would increase to £4,483.

Thankfully, if you are currently driving a double cab pick-up owned by your company, HMRC have also set out transitional rules for benefit in kinds which does allow a period of grace. The transitional rules will apply to any double cab pick-up that was purchased, leased, or ordered before 1 July 2024. Any vehicle that meets these criteria will be able to apply the current legislation until the earlier of disposal, the lease expiration or 5 April 2028.

However, for any vehicles purchased after that date, the new rules will apply and if not informed an expensive mistake could be made.

What will this mean for the future of pick-up sales?

What this will mean for the double cab pick-up sales departments in showrooms across the country is not clear. I suggest a busy few months up to the end of June whilst people look to take advantage of the current rules. However, thereafter could this see the end of the road for the double cab pick up on farm?

It would seem likely that the pick-up landscape will change if a sensible alternative vehicle can be purchased that continues to meet the definition of a commercial vehicle.

For many industries the choices could be to go electric with a mere 2% benefit in kind charge. At present, industry press suggests that there is only one electric pick-up on the market and there a few signs of others arriving soon.

If you have any questions regarding this matter please get in touch.

FEATURING: Russell Phillips
Russell is a Manager in our Truro office in the business service team, advising on annual general compliance matters including end of year accounts reporting,… read more
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