Planning for the cost of business motoring is always important.
In this next article in a short series of Year End tax planning articles, we look at the change to the tax treatment of double cab pick-ups (DCPUS) announced in the Autumn Budget 2024, and suggest how tax incentives for low emission technology can continue to help employers.
Update on double cab pick-ups
Businesses using DCPUs — vehicles like the Toyota Hilux and Nissan Navara — will know that the question of how they should be treated for tax has been in and out of the news for some years. At issue is the position as regards the benefit in kind rules and capital allowances. Should DCPUs be treated as cars or goods vehicles?
How we got here: In February 2024, it was announced that HMRC guidance was to be changed, and DCPUs with a payload of one tonne or more would be treated as cars, rather than goods vehicles. Within days, there was an about-turn, with the announcement that DCPUs with the relevant payload would be treated as goods vehicles. This is the current position, but it is due to change again from April 2025.
Position from 2025: As set out in the Autumn Budget 2024, revised criteria apply from 1 April 2025 for Corporation Tax, and 6 April 2025 for Income Tax.
From April 2025, HMRC will evaluate what it considers the ‘primary suitability’ of a vehicle at the time of manufacture to decide whether it will be classed as a car or goods vehicle. The expectation is that most, if not all, DCPUs (even with payload over one tonne) will be treated as cars.
Transitional rules
There are transitional rules which may provide planning opportunities.
- For benefit in kind purposes: if an employer purchases, leases or orders a DCPU with a payload of one tonne or more before 6 April 2025, the current tax treatment applies to the earlier of the date the vehicle is disposed of; the date the lease expires; or 5 April 2029.
- For capital allowances purposes: where expenditure is incurred as a result of a contract entered into before 1 April 2025 (for Corporation Tax) or 6 April (for Income Tax) and the expenditure is incurred before 1 October 2025, the current rules will apply.
| Action point: review position before April 2025 |
| There is a useful window for action before April 2025. If you rely heavily on DCPUs in your business, it will be worth deciding if you can use this to advantage by accelerating the purchase or lease of such vehicles before this date. |
VAT
Nothing changes here. For VAT purposes, DCPUs are classified on the basis of payload. DCPUs with a payload under one tonne are classified as cars; DCPUs with payload of one tonne or more are classified as goods vehicles.
Controlling benefit in kind costs on business motoring
Controlling benefit in kind costs is all the more important with the increased employer National Insurance costs on the horizon after the Autumn Budget 2024. A low emissions policy for business vehicles can play an important part here.
The costs involved
Where directors and other employees are provided with a car, there is a benefit in kind charge, often referred to as company car tax, unless private use is excluded. Demonstrating that private use is excluded is technically very difficult, which means that for most employers, there is the cost of Class 1A National Insurance contributions on such benefits to consider. At 13.8% for 2024/25, this is already significant, and from 6 April 2025, this rises to 15%.
Zero and low emission vehicles
The benefit is calculated with reference to the list price of the car, plus particular taxable accessories, multiplied by what is called the ‘appropriate percentage’. The appropriate percentage is graduated by CO2 emissions, with the rules weighted in favour of zero and low emission vehicles.
Contrast the maximum percentage of 37% for internal combustion engine (ICE) vehicles, with the 2% charged for zero emission cars for 2024/25, and it’s easy to see how low emission technology comes into its own for benefit in kind purposes. Though the appropriate percentages for zero emission vehicles will rise over coming years, they will still only be 9% in 2029/30, as against a maximum of 39% for ICE vehicles.
Note, in passing, the favourable rules on capital allowances for businesses buying new electric cars with zero CO2 emissions, which were extended until 2026 by the Autumn Budget 2024. We are happy to advise further on the tax advantages available for green motoring.
If you’d like to discuss the situation highlighted in this article or talk to us about how we could support you on outsourced accounting services, please get in touch with us on info@teamsas.co.uk or call 0118 911 3777.
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