Confusion Over Double Cab Pickups HMRC Classification

22 April 2024

Many Members will have noted on 12th February this year that the Government issued new tax guidance which would have resulted in double cab pickups being reclassified from the 1st of July 2024 as company cars, not commercial vehicles.

HMRC currently uses a VAT approach in which a double cab pickup with a payload of under one tonne is classified as a car and anything over one tonne is classified as a van. Broadly, vans have a lower Benefit in Kind (BIK) tax charge than cars.

In its explanation for the changes HMRC said that the current tax treatment, while seen as a “pragmatic way of resolving the primary suitability and classification of double cab pickups”, was at odds with the judgment reached by the Court of Appeal in Payne & Ors (Coca-Cola) v R & C Commrs (2020).

In this case, Coca-Cola lost its fight against HMRC’s judgment that its Volkswagen Kombis and Vauxhall Vivaros on fleet should be classed as company cars, not vans, and taxed accordingly. The case centred around the second row of seats and rear passenger windows in the vehicles, which in the view of the Court of Appeal judges, could have been used to carry people.

Although the new tax treatment was to take effect from 1st July this year, HMRC also announced that there was to be a proposed transition period whereby most, if not all, double cab pickups were to be classified as cars when calculating the benefit charge. This was because HMRC categorises vehicles based on whether they are deemed most suitable for conveying passengers or goods. Under the new guidance, double cab pickups were to be seen as equally suited to the conveyance of passengers and goods and to have no “predominant suitability”.

HMRC went on to say that the transitional arrangements would apply to employers who had purchased, leased, or ordered a double cab pickup before 1st July, and that as such they might rely upon the previous treatment until 5th April 2028, or if they disposed of the vehicle or the lease expired, if this came sooner.

From a tax perspective the implications of the change meant that the BIK would have become significantly higher, resulting in greatly increased income tax and national insurance payments. This would also have been true for any associated fuel benefit provided.

Members will however be relieved that following an immediate and highly vocal backlash, HMRC almost immediately reversed the decision, and seven days later on Monday 19th February issued the following statement: 

‘The government has listened carefully to views from farmers and the motoring industry on the potential impacts of the change in tax-treatment. The government has acknowledged that the 2020 court decision and resultant guidance update 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 added nothing new to the ruling, so that everything effectively remains exactly as it was before. A somewhat red-faced Nigel Huddleston, Financial Secretary to the Treasury, said: 

‘We will change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.’

Clearly, it would have been more prudent to have conducted better and more considered consultation before the announcement of such a large tax increase, and the handling of the issue certainly does not inspire particular confidence, but dealers and motorists will at least be pleased the government has seen sense so promptly and reversed a decision which would otherwise have massively penalised those who need a pickup truck for legitimate business needs, and severely affected dealers’ sale of such vehicles.