Background
For over two decades double cab pickup trucks have been classified as vans for company car tax purposes. They have therefore been a popular choice for many as a company vehicle in order to benefit from the lower tax charge than is otherwise applicable to company cars.
HM Revenue and Customs (HMRC) have however recently revisited their interpretation of the treatment of double cab pickups for income tax purposes in light of a Court of Appeal decision in their favour. With effect from 1 July 2024 double cab pickups will no longer be classified as vans for benefit in kind purposes and will instead be taxed as a car by HMRC. Individuals potentially could see a five-fold increase in their benefit in kind tax bill, although transitional arrangements will be in place for those holding such vehicles before the date of change.
Detail
HMRC have recently updated the guidance in their employment income manual in respect of double cab pickups for benefit in kind purposes, which will come into effect from 1 July 2024. The change will see double cab vehicles on company fleets brought into line with the company car tax regime. Although the relevant legislation has not actually changed, the updated guidance reflects HMRC’s belief that most vehicles of this type do not escape the car classification for employment income tax purposes. The change is in part to reflect the fact many of these vehicles are expensive and have high emissions, which are two key elements of how the benefit in kind charge for company cars is determined.
HMRC has long argued that double cab pickups, such as Vauxhall Vivaros and VW Transporter T5s, are often used as passenger cars, which is the reason for the recent change in guidance. These vehicles featured in a defining case brought by Coca-Cola, disputing HMRC’s position that modified vans should be treated as cars for VAT purposes. The court of Appeal has since ruled in favour of HMRC and hence the change to the guidance.
The latest HMRC guidance states: ‘From 1 July 2024 most, if not all, double cab pickups will be classified as cars when calculating the benefit [in kind] charge. This is because typically these vehicles are equally suited to convey passengers and goods and have no predominant suitability.’
According to the guidance, a double cab pickup normally has:
- a front passenger cab that contains a second row of seats and is capable of seating about four passengers, plus the driver;
- four doors capable of being opened independently, whether the rear doors are hinged at the front or the rear (two-door versions are normally accepted to be vans), and
- an uncovered pickup area behind the passenger cab.
Currently providing the vehicle is not used for any other private purpose (except to an insignificant extent) and has been made available to the employee primarily for their business travel, the van taxable benefit charge will be nil. Even where these conditions are not met and a van benefit charge arises, it is usually much lower than for a non-electric car.
At the moment a double cab pickup with a payload of over one tonne is classified as a van for benefit in kind tax purposes and where the vehicle is used for more than just incidental private use the benefit in kind charge for a van is £3,960 per annum for the 2023/24 tax year. There is an associated £757 fuel charge if any private fuel is provided by the company. In comparison the benefit in kind charge for a company car is based on CO2 emissions of the vehicle. For a car with emissions of 160g/km or more the tax charge is currently 37% of the list price and if the company provides any private fuel to the employee then there is also a flat car fuel benefit charge of £27,800 per annum.
It has long been acknowledged that the tax treatment of double-cab pickups provided to employees has been something of an anomaly. Previously the guidance interpreted the tax treatment in line with the VAT legislation, which is based on payload weight. Vehicles of this type with a payload of one tonne and above are treated as vans for VAT purposes and anything below is a car.
For income tax the car vs van decision, which is applied to most other vehicles, is more nuanced and is based on a two part test which essentially considers whether the vehicle was primarily built for the conveyance of goods.
The Court of Appeal decision in the Coca-Cola case confirmed that applying the VAT legislation was not the correct test for double-cab pickups for income tax purposes. Instead the key factor in deciding that a vehicle is a van should be if it is primarily suited to conveying goods.
Single cab pickups will continue to be classified as vans provided they satisfy the weight threshold of having a payload in excess of one tonne.
Transitional arrangements will apply for employers who have purchased, leased or ordered a double cab pickup before 1 July 2024. These will allow the previous treatment to continue to be used until the earlier of disposal of the vehicle, expiry of the vehicle lease or 5 April 2028.
It is worth noting however that just because a vehicle is a car for benefit in kind purposes does not necessarily mean it is a car for other taxes. Double cab pickups will continue to be classified as commercial vehicles for VAT even after 1 July 2024, providing a further complication for employers.
If you would like more information on the points raised above, or the tax treatment of company vehicles please speak to our Tax Director, Jenny Marks.
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