The government has performed a humiliating U-turn on its plans to massively hike company car tax contributions on double-cab pickups.
HM Revenue & Customs (HMRC) tax guidance announced on 12 February that double-cab pickups were being reclassified as company cars, not commercial vehicles, which would have seen Benefit-in-Kind tax bills calculated on their CO2 emissions.
Following a backlash from motorists, HMRC has caved within a week, in what will be welcome news to small businesses, farmers and tradespeople who were facing an astronomical rise in tax costs for running a pickup.
What has HMRC announced?
On Monday 19 February, an HMRC statement said: ‘The government has listened carefully to views from farmers and the motoring industry on the potential impacts of the change in tax-treatment. The government has acknowledged that the 2020 court decision and resultant guidance 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.’
Although this research could have been done before announcing a huge tax increase, motorists will be glad that the government has seen sense and reversed a decision that would have massively penalised those who need a pickup truck for legitimate business needs.
The statement added nothing new to the ruling, meaning that everything remains exactly as it was before. It has simply said that the previous plans will not go ahead. Nigel Huddleston, Financial Secretary to the Treasury, said: ‘We will change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.’
What are the current cost advantages of a double-cab pickup?
The vast majority of pickups are considered to be light commercial vehicles (LCVs), which grants them an inexpensive flat-rate BIK, one unrelated to emissions or price.
A 40% taxpayer, for example, will pay £132 per month in BIK for a vehicle that is classified as a van.
If they instead opt for a conventional car or SUV, the BIK tax bracket of which varies with emissions and cost, the monthly BIK cost could easily be as much as five times that amount, if not more.
Why did HMRC want to change the tax rules for pickups?
Because of the cost advantages, lots of company car drivers opted for pickups – chiefly the more spacious double-cab varieties – to carry out both personal and work-related duties.
A business buying a pickup can also reclaim the VAT and, operating it as a company vehicle – including private use – make substantial cost reductions across the board.
The prominence and ever-increasing popularity of double-cab pickups, due to the savings offered, has not slipped under the radar of HMRC. For years now, it has been assessing matters such as the classification of vehicles with regards to benefit-in-kind tax, particularly when the vehicle in question is a dual-purpose one that can serve as a private vehicle.
What did HMRC say when it changed the new double-cab pickup benefit rules?
In guidance issued on 12 February, HMRC stated: ‘From 1 July 2024, HMRC will no longer interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes.
‘This VAT approach for double cab pickups differentiated based on payload, with anything under one tonne classified as a car, and anything a tonne and over as a van. This rule was replicated as a pragmatic way of resolving the primary suitability and classification of double cab pickups.’
‘Going forward, classification of double cab pickups will therefore need to be determined by assessing the vehicle as a whole at the point that it is made available to determine whether the vehicle construction has a primary suitability as per the two-part test outlined at EIM23115 onwards.’
‘It therefore follows that from 1 July 2024 most if not all double cab pickups will be classified as cars when calculating the benefit charge. This is because typically these vehicles are equally suited to convey passengers and goods and have no predominant suitability.’
How much would the changes have cost?
John Messor, joint owner of Innovation Tax and Mileage Consulting Group Ltd, said: ‘The most common double cab pickup in the UK is the Ford Ranger with a list price of circa £60,000 and CO2 emissions of over 200g/km.’
Messor, speaking to company car specialists Fleet News, explained that under the current one-tonne-plus pickup regulations, the van-based BIK would total £3,960.
However, under the proposed rules, the Ranger’s emissions would have landed it in the 37% company car tax bracket. Combined with its P11D value, its BIK would have risen to some £22,000.
For a 40% tax payer, that would have resulted in their vehicle BIK tax leaping from £1,584 a year to £8,880, before factoring in any potential additional costs related to fuel benefits.
Messor also questioned the timing of the announcement: ‘It is disappointing that they are changing this concession in the middle of a tax year. It would surely have been cleaner to wait until the start of a new tax year – say, 6 April 2025.’
Popular double-cab models that would have been affected by the new tax regulations include the Toyota Hilux, SsangYong Musso, Ford Ranger, and Isuzu D-Max.
What impact would the law change have had on the pickup market?
The new regulations would likely have had a major impact on the pickup truck market. Buyers were to be offered a grace period up until 1 July. Any pickup ordered before that date would have qualified for the old system, so it would have been likely that there would have been a flurry of orders before the market plummeted.
However, there was hope on the horizon with alternative fuel pickup trucks being planned by several manufacturers. The Toyota Hilux hydrogen is being trialled, while there is also a plug-in hybrid version of the Ford Ranger on the way.
Electric options are also starting to appear, including the zero-emissions Maxus T90. At the moment, it is the only fully electric pickup truck available in the UK. Several other electric pickups are available in other markets, however, and more are mooted to be in development.
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