HMRC quietly closes loophole that saves drivers thousands in car tax

Drivers who use pick-up trucks for work and personal use are set to pay more in car tax under changes being brought in by the government.

From July double-cab pickup trucks will be classed as cars rather than vans, bringing an end to a tax loophole that saved drivers money.

Double-cab pick-ups, such as the Ford Ranger and Nissan Navara, have grown in popularity in recent years because their dual-purpose attributes mean they are suitable for being a working vehicle as well as for personal use.

Any double-cab pick-up that had a payload of more than a tonne was considered a van and therefore attracted far cheaper company car tax.

However, HM Revenue and Customs (HMRC) quietly announced in a note earlier this week that from 1 July, it will “no longer interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes”.

The tax body says it will now assess the classification of each vehicle of this type on an individual level, but that from July 2024 “most if not all double cab pick-ups will be classified as cars when calculating the benefit change”. HMRC says this is because these vehicles are “equally suited” to both transporting goods and also passengers.

Company vehicle tax is based on benefit in kind (BIK), which on cars is a percentage based on their CO2 emissions that takes into account a vehicle’s list price. It favours electric and hybrid cars, which emit lower CO2.

However, currently, pick-up trucks are charged at a flat rate which is £3,960 for the 2023/2024 tax year. For a 20 per cent taxpayer, van BIK is £792 per year, or £66 a month. For 40 per cent taxpayers, it’s £1,584 per year, or £132 a month.

But under these changes, pick-ups will become significantly more expensive for company car tax, because it will now be calculated based on their typically-high CO2 emissions.

A Ford Ranger – the UK’s most popular pick-up, and the fourth best-selling ‘van’ in the UK last year – has CO2 emissions of more than 200g/km, putting it in the highest BIK tax bracket of 37 per cent.

According to the Professional Pickup website, from July 2024 a driver using a Ford Ranger Wildtrak 2.0 as a company car will face a tax bill of £290 a month, or £580 a month for a higher rate taxpayer.

It means a driver could end up spending £5,376 more on company car tax per year under these new rules, making a double cab pick-up uneconomical to run, and likely to cause demand for these vehicles to fall.

Any new double cab pick-ups ordered or leased until 30 June, 2024, will still qualify for the current lower tax rates, even if they aren’t registered by July. Single-cab pick-ups are unaffected by these changes.

For capital allowance claims, transitional arrangements will apply when a taxpayer enters into a contract before 1 July 2024 to purchase a double cab pick-up and the expenditure is incurred on or after that date but before 1 January 2025.

In these circumstances a double cab pick-up with a payload of one tonne or more will continue to be treated as a van.

The HMRC move comes after it won a Court of Appeal case against Coca-Cola, which claimed that the four-seat crew-cab versions of the Vauxhall Vivaro and Volkswagen Transporter vans used in its fleet ought to be taxed as commercial vehicles for BIK purposes.

Coca-Cola lost the case, paving the way for HMRC to bring in the changes.

Any employer who ordered, purchased or leased a DCPU before 1 July 2024 can continue following the current rules until the earliest of the vehicle being disposed of, the lease expiring, or 5 April 2028.

An HMRC spokesperson said: “We’re changing the tax treatment of double cab pickups when used as a benefit in kind and when claiming capital allowances, following a Court of Appeal ruling. We’ve put in place transitional measures to help taxpayers adjust to the new rules.”