Finance expert offers advice on major tax rule change that will affect thousands of companies
Businesses and individuals are being warned to take note of a major rule change that is set to increase taxes on company vehicles in under three months.
From 6 April, double cab pick-ups (DCPUs) with a payload of one tonne or more will be treated as cars for Benefits in Kind (BIK) and capital allowance purposes.
Mark Johnson, Corporate Tax Manager at Coventry and Warwickshire independent accountancy firm HB&O, has warned these changes will have financial implications for employers and employees alike.
Double cab pick-ups purchased, leased or ordered before this date can retain van classification under transitional rules until April 2029 at the latest.
The tax change, delivered by Chancellor Rachel Reeves in the recent Autumn Budget, will not impact on the level of vehicle excise duty (VED) fleet owners have to pay, the Treasury has said.
However, it’s set to drive up Benefit in kind (BIK) taxes for employees using these vehicles for personal use and reduce capital allowances for businesses, making it harder to claim tax relief.
Currently, double cab pick-ups classified as vans have much lower BIK charges. The current van BIK rate is £3,960 while the van fuel BIK rate is £757 and assessable income is set at £4,717. The tax cost for a 40% higher rate payer is £1,887.
Under the new rules, DCPU’s will be taxed as a car based on CO2 emissions and the vehicle’s £40,000 list price. Most DCPU’s will attract the highest CO2 emissions rate of 37%, which equates to a vehicle BIK rate of £14,800 and a car fuel BIK rate of £10,434.
Assessable income will be set, under the new rules, at £25,234 and the tax cost for a higher rate payer will be £10,094. This represents a 432% increase in tax costs for employees at the higher (40%) tax rate.
The change to BIK taxation will also lead to increased payments on fully electric and hybrid vehicles. It reflects the government’s push to advance the transition to fully electric vehicles, while discouraging plug-in hybrid electric vehicle use, to aid the UK’s bid to meet climate targets.
Mark Johnson from HB&O said: “These tax changes will have huge financial consequences for companies across many different sectors so it’s imperative both businesses and workers are fully aware of them.
“Our tax specialists are fully equipped to help business leaders navigate these changes, offering tailored advice to ensure their companies remain tax-efficient and sustainable.
“We’ll support businesses in making strategic decisions around fleet management and position them to benefit from these adjustments.”
The Government says it is “aligning” the treatment of DCPUs to reflect a ruling by the Court of Appeal involving HMRC and Coca-Cola that related to the primary suitability of a vehicle.
The Court of Appeal ruled that multipurpose vehicles which are equally suited to carrying people and goods, such as DCPU’s, should be treated as cars.
“It is right that their tax takes into account the purpose for which they are primarily suited,” a Treasury spokesperson said.
HB&O is a leading independent accountancy firm and has offices in Coventry and Leamington.
To find out more about HB&O visit www.hboltd.co.uk
