With all the revelations in the Autumn Budget, one detail that slipped under the radar was the statement that from April 2025, double cab pick-up trucks will be treated as cars for the purposes of capital allowances, benefits in kind (BIK), and some deductions from business profits.
These changes will apply to vehicles purchased or leased on or after 6 April 2025.
Following the Budget, there is no debate, and from 6 April 2025, double cab pick-up = car.
These changes could result in higher tax bills for employees and businesses alike. In this article, we’ll break down the new rules, what they mean for you, and how to plan effectively.
What’s Changing?
From 6 April 2025, double cab pick-up trucks with a payload of at least one metric tonne will no longer be classified as vans for benefit-in-kind (BIK) or capital allowance purposes. Instead, they’ll be treated as cars, aligning with recent case law and HMRC’s revised interpretation of tax legislation.
This change has several implications:
1. Higher BIK Taxes for employees using these vehicles for personal use.
2. Reduced Capital Allowances for businesses, making it harder to claim tax relief.
3. No Change to VAT Rules, which remain based on payload capacity.
Let’s explore the details.
Impact on Benefit-in-Kind (BIK) Taxation
Currently, double cab pick-ups classified as vans generate much lower BIK charges. Here’s an example:
Van BIK (2024/25):
- Van BIK Rate: £3,960
- Van Fuel BIK Rate: £757
- Assessable Income: £4,717
- Tax Cost for Higher Rate Payer (40%*): £1,887*
*in Scotland, equivalent to potentially 45%, with a tax cost of £2,123
From April 2025, the same vehicle will be taxed as a car based on CO2 emissions and the vehicle’s list price. Most DCPUs will attract the highest CO2 emissions rate of 37%:
Car BIK (2025/26):
- List Price: £40,000
- CO2 Emissions Rate: 37%
- Vehicle BIK Rate (£40,000 x 37%): £14,800
- Car Fuel BIK Rate (£28,200 x 37%): £10,434
- Assessable Income: £25,234
- Tax Cost for Higher Rate Payer (40%*): £10,094
This represents a 432% increase in tax costs for employees at the higher (40%) tax rate.
*in Scotland, equivalent to £11,355, and a rise of 435%.
Capital Allowances: Reduced Relief for Businesses
Agricultural vehicles like tractors and quad bikes remain fully eligible for the Annual Investment Allowance (AIA). This means businesses can deduct the entire cost of these purchases from their taxable profits, up to the current AIA limit of £1 million.
Single cab pick-ups, as commercial vehicles, also continue to qualify for the AIA.
If vehicles are held by a sole trader or partnership and there’s a mix of business and private use, only the business portion of the cost can be claimed. For instance, if a self-employed business owner buys a single cab pick-up for £25,000 and splits its use 50/50 between work and personal activities, only £12,500 would qualify for the tax deduction.
Cars including double cab pick-ups from 6 April 2025, don’t qualify for the AIA. Instead, tax relief depends on their CO2 emissions:
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Brand-new, zero-emission cars: Eligible for a 100% first-year allowance.
-
Second-hand electric cars: Allowable at 18% of their value.
-
Cars with CO2 emissions of 50g/km or less: Allowable at 18% of their value.
-
Cars with CO2 emissions over 50g/km: Allowable at just 6% of their value.
For sole traders and partnerships, private use of a commercial vehicle or car reduces the tax relief you can claim. This adjustment is based on how much the vehicle is used for non-business purposes.
This reduction can significantly affect the upfront tax savings available to unincorporated businesses when purchasing vehicles.
For companies, private use is handled differently. Full tax relief may still apply to the cost of the vehicle, but if it’s made available for personal use by an employee or director, a Benefit in Kind (BIK) charge will apply, as mentioned earlier.
Transitional Arrangements: A Temporary Relief
If you purchase, lease, or order a double cab pick-up before 5 April 2025, the current tax rules will continue to apply until:
1. You dispose of the vehicle,
2. The lease expires, or
3. 5 April 2029
whichever comes first
This transitional period provides some breathing room for businesses and employees who act quickly. However, vehicles financed on long-term leases may still face the new rules if the lease extends beyond 2029.
VAT Rules Remain Unchanged
The only silver lining is that VAT rules for double cab pick-ups remain the same. Businesses can continue to reclaim VAT on vehicles with a payload exceeding one tonne.
Plan Ahead: What Can You Do?
To minimise the financial impact of these changes, consider the following:
1. Replace Vehicles Before April 2025
If your current double cab pick-up is nearing the end of its life, replace it before the new rules take effect to lock in the current tax benefits until April 2029.
2. Explore Alternative Vehicles
Assess whether single cab pick-ups or other commercial vehicles might better suit your needs while maintaining favourable tax treatment.
3. Limit Private Use
Private use of vehicles classified as cars attracts stricter rules. To avoid hefty BIK charges, vehicles should:
- Be stored at the business premises outside work hours,
- Have no private insurance coverage, and
- Be used strictly for business.
4. Seek Expert Advice
Consult one of our tax experts to review your fleet and ensure compliance with the new rules while optimising your tax position.
One Final Thought
The recent announcement about double cab pick-up trucks in the October 2024 Budget echoes a similar proposal made back in March 2024. You might remember that after just two weeks (and significant pushback from various industry groups) that decision was overturned by the Government at the time.
Now, with the latest announcement in October, similar objections have been raised to the Chancellor and the new Government. However, there’s currently no indication that they plan to reverse the decision again.
If the situation changes, we’ll keep you updated. For now, it’s safest to plan as though the proposed rules will take effect from April 2025.
Summary
The reclassification of double cab pick-ups marks a significant shift, particularly for businesses and industries that rely heavily on these vehicles. By staying informed, understanding the new rules, and planning ahead, you can minimise the financial impact and make confident decisions about managing your fleet.
If you have questions about how these changes might affect you or need tailored advice, get in touch with us today.
