Another U-Turn On Double Cab Pick-ups
As you may be aware, in February 2024 HMRC proposed a change in relation to the tax treatment of double cab pick-ups for both capital allowances and benefit in kind (BIK) purposes. They then quickly changed their mind around a week later and decided not to implement the changes. However, following the most recent Budget the Government have again decided these changes should be put in place.
From 1st April 2025 for Corporation Tax, and 6th April 2025 for Income Tax purposes, newly purchased double cab pick-ups with a carrying capacity of one tonne or more will be treated as a car, rather than a van, for capital allowances, BIK and lease tax deductions from business profits. This is because typically, these vehicles are equally suitable to convey passengers and goods and have no predominant suitability for either. This change will affect both partnerships and companies as well as sole traders.
The existing capital allowances treatment will still apply to existing vehicles and those who enter into a contract to purchase or lease a double cab pick-ups before 1st / 6th April 2025. The Treasury have confirmed they will be able to use this previous treatment until the earlier of disposal, lease expiry or 5 April 2029.
Transitional BIK arrangements will apply for employers (and directors) that the business has purchased, leased or ordered a double cab pick-up before 6 April 2025.
At the time of writing, there is no change to the VAT treatment of the purchase of a double cab pick-up, however that may change in the next few months.
Transitional rules – contracts made before 1st / 6th April 2025 –
For capital allowances, the relevant date is when expenditure is incurred. This is often the date that the obligation to pay becomes unconditional which is usually the date of delivery.
However, HMRC have confirmed that transitional rules apply for both capital allowances and for the benefit in kind charge. If a contract to purchase or lease the vehicle has been made before 1st / 6th April 2025 even if delivered after those dates, the current, more beneficial rules, will apply.
Capital allowances-date that expenditure is incurred –
For capital allowances, the relevant date is when expenditure is incurred. This is the date that the obligation to pay becomes unconditional. This is usually the date of delivery. If there is an agreement to make payment more than four months after the delivery date, the expenditure is incurred when payment is made. Therefore, for any purchases to be within the existing, and more beneficial rules, there should be an unconditional obligation to pay by 31st March or 5th April 2025, with payment being made within the four month limit
Increased Benefits in Kind –
These changes for new purchases will greatly increase the tax payable on the provision of a company vehicle. The BIK is computed using the vehicle’s list price, regardless of what has been paid for it. This applies to second hand vehicles too. Double cab pick-ups tend to have poor CO2 emissions, which could mean a greatly increased BIK for new purchases from April 2025.
Please get in touch if you would like to discuss how this may affect you or your business.
Important note: The paragraph regarding “transitional rules” has been updated since the printed version of our Newsletter was published on 11 December 2024.
