In yet another U-turn, the UK government has introduced a significant change in the tax treatment of double cab pick-up vehicles (DCPUs) and company car tax, following a recent Court of Appeal judgment. This ruling affects how DCPUs will be classified for tax purposes starting in 2025. There is also new legislation targeting car ownership arrangements that avoid company car tax. Here’s what business owners and fleet managers need to know about these upcoming changes and how they could impact your tax obligations.
Double Cab Pick-Up Vehicles (DCPUs) Reclassified as Cars for Tax Purposes
Starting on the 1 April 2025 for Corporation Tax and 6 April 2025 for Income Tax, DCPUs with a payload of one tonne or more will now be treated as cars rather than Commercial vehicles for certain tax purposes. Here’s how this change will affect DCPU owners:
Capital Allowances: For capital allowances, these vehicles will be treated as cars, affecting the amount of tax relief that can be claimed over time.
Benefits in Kind (BIK): Employers who provide DCPUs to employees may face increased tax liabilities under the car BIK rules, which generally result in a higher taxable benefit than those for commercial vehicles.
Business Profit Deductions: Certain deductions from business profits related to DCPUs will also be impacted by this reclassification.
The good news is that there will be transitional arrangements in place for DCPUs purchased, leased, or ordered before 6 April 2025. Employers can continue to apply the current tax treatment for these vehicles until the earlier of:
– 5 April 2029
– The disposal of the vehicle
– The end of the lease
Closing Loopholes in Car Ownership Arrangements
In a separate move to address tax avoidance, the government will also tackle certain car ownership arrangements that enable employees to avoid paying company car tax. This typically involves an employer or third party selling a car to an employee, often with a loan that has no repayment terms or negligible interest, and then buying the car back shortly afterward.
Effective Date: These new rules will come into effect from 6 April 2026.
Objective: The changes aim to prevent employees from avoiding company car tax through this loophole, ensuring a fairer system where all employees using company cars are taxed consistently.
To develop fair and practical legislation, HMRC will consult with stakeholders ahead of the implementation date in April 2026.
Changes to Company Car Tax (CCT) Rates
Company Car Tax rates are set to increase in the coming years. Here’s a breakdown of the upcoming changes:
2028-2029
– Zero-emission vehicles (ZEVs) will see a 2-percentage point increase.
– All other vehicles will see a 1 percentage point increase.
– The maximum appropriate percentage will be capped at 38%.
2029-2030:
– ZEVs will incur another 2-percentage point increase.
– All other vehicles will increase by 1 percentage point.
– The maximum appropriate percentage will be capped at 39%.
For vehicles with CO2 emissions of 1-50g per kilometre and capable of operating as ZEVs, the additional benefit from the reduced rate will be removed from 2028-2030. These changes will be automatically updated in tax codes starting 6 April 2028.
Updates to Heavy Goods Vehicle (HGV) Duty and Levy
The government also announced updates for HGV duties:
Vehicle Excise Duty rates for HGVs will be increased in line with the Retail Price Index (RPI) from 1 April 2025 for the 2025-2026 tax year.
– The HGV Levy will similarly be adjusted in line with RPI from 1 April 2025.
What This Means for Your Business
These tax changes mean that businesses will need to revisit their vehicle strategies, particularly for those using DCPUs and other vehicles for employee benefits. With DCPUs being classified as cars, the tax implications may lead some businesses to reconsider their vehicle choices, especially when it comes to benefits in kind and capital allowances.
For companies that provide vehicles to employees or engage in car ownership schemes, it’s essential to review these arrangements and consider the impact of the upcoming legislation. Businesses should also prepare for the increase in CCT rates and HGV duties, which could affect fleet costs in the future.
The new rules present a good opportunity to review your fleet policies and ensure that your business is taking advantage of the most tax-efficient practices available.
If you think you may be impacted by any of these changes, please get in touch to find out more.