Vehicle tax: ‘Days-old’ tax guidance reversed

Days-old tax guidance has been overturned by HMRC, leaving tax advisers scrambling to keep clients up to date.

The tax authority has gone back on a decision to reclassify double-cab pickups (DCPUs, typically double-row seating pickup trucks) as ‘cars’ for employment benefit and capital allowance purposes.

The initial change was flagged on 12 February, updating its tax guidance on the treatment of DCPUs following a 2020 Court of Appeal judgment (Payne & Ors (Coca-Cola) v R & C Commrs (2020) (BTC19)). 

This change meant that, from 1 July 2024, DCPUs with a payload of one tonne or more would be treated as cars rather than goods vehicles for capital allowances and benefit-in-kind purposes.

Treating DCPUs in this manner could have seen the benefit in kind, upon which tax is paid, increase several-fold, alongside a corresponding NIC charge for employers at 13.8%, with transitional rules through to 2028 to lessen the financial blow.

Guidance reversed

But, the past week of advisers’ communication to potentially affected clients has been in vain, with the new guidance reversed inside eight days. A joint Treasury/HMRC statement said that the government “has listened carefully” to views from farmers and the motoring industry “on the potential impacts” of the change in tax treatment.

The new rules “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”, the statement said.

The long-running classification of larger DCPUs as vans was based on a principle consistent with their VAT treatment. Financial secretary to the Treasury Nigel Huddleston said that draft legislation will be put forward at the next Finance Bill to cement that position and “to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy”.

Tax advisers who had sent out details of the initial change have been sending out another set of communications to flag up the government’s rowing back.

One email from an adviser to clients stated: “We are now back to where we were … One of the quickest tax u-turns I have ever witnessed!”

‘Done the right thing’

Society of Motor Manufacturers and Traders chief executive Mike Hawes told Fleet News that the move was a “sensible decision [which] will come as a relief to the many sole traders and businesses, especially in the construction and farming sectors, that rely on double cab pickups for their livelihoods”.

The National Farmers’ Union (NFU) had previously warned that the move would “disproportionately and unfairly impact rural businesses”.

Following the reversal, a spokesperson for the NFU said: “Sometimes politicians and officials don’t get the credit they deserve for listening to coherent arguments made in good faith and with solid evidence. In this case that’s exactly what’s happened and we’re delighted the government has done the right thing by farmers.”

Further detail from the Treasury/HMRC

• The tax on the benefit-in-kind will now not increase when employers provide these vehicles to their employees. The capital allowances available in the first year of use will now not be reduced when a business purchases this vehicle for use in their trade.
• This will ensure a continued generous and consistent treatment of DCPUs for capital allowances, benefit in kind and VAT purposes, maintaining simplicity in the tax system.
• HMRC withdrew its updated guidance during the afternoon of Monday 19 February 2024.
• Arrangements that HMRC announced on 12 February 2024 to help DCPU owners adapt to the updated guidance are now redundant because the tax treatment is not changing.
• This update is only with reference to DCPUs with a payload of one tonne or more. DCPUs with a payload of less than one tonne continue to be treated as cars.

IFA Tax Series 2024 starts Thursday 21 March, with a Spring budget update, discussion of employment tax cases, advice on exiting a business and Basis Period Reform. Find out more or register.