Major change to vehicle tax for farming communities: HMRC reclassifies double-cab pickups

This latest decision closes a loophole that previously allowed these vehicles to enjoy lower Benefit in Kind (BIK) tax rates and VAT reclaim benefits.

It follows a dispute between Coca-Cola and HM Revenue & Customs (HMRC), which stems from a legal battle dating back to 2017.

Historically favoured for their versatility and cost-effectiveness, double-cab pickups with a payload of one tonne (1,000kg) or more were previously classified as vans for taxation purposes.

However, an earlier ruling in 2020 (Payne & Ors (Coca-Cola) v R & C Commrs) by HMRC on the definition of a van has led to a significant shift.

From 1 July 2024, most double-cab pickups are likely to be considered cars due to their dual functionality, thus attracting higher taxes for their users.

Owners of double-cab pickups used for business, including many farmers, must now navigate the tax landscape with care and consider how the vehicle is used:

- For business use: The possibility to claim capital allowances and reclaim VAT, subject to HMRC's conditions.

- For mixed use: The need to account for VAT on the private use portion and prepare for a BIK tax charge based on CO2 emissions and list price.

Owners who acquired their vehicles before this date may continue to benefit from the current tax rules until 5 April 2028 or until the vehicle is sold, depending on which comes first.

Given the changes, Moore Thompson, specialists in chartered accountancy, are committed to supporting the farming community through this transition, offering expert advice and strategic planning to effectively navigate the upcoming tax changes.

They have emphasised the importance of establishing clear vehicle usage agreements to demonstrate the intended purpose of vehicles to HMRC.

Heather Bright, Tax Partner at Moore Thompson, advises the farming community on the implications of this change.

She said: “This landmark ruling marks a pivotal shift in how double-cab pickups are perceived for tax purposes. Farmers and small businesses that have relied on these vehicles for their dual-use benefits must now reassess their tax strategy moving forward.

“It's crucial to understand the impact on both capital allowances and BIK tax charges, depending on whether the vehicle is used exclusively for business or mixed use.”

Heather said the new tax classification change may present an opportune moment for the farming community to consider transitioning to electric vehicles (EVs).

“While practicality and the availability of suitable vehicles will need to be considered, there are numerous benefits to operating an electric van or truck, including Enhanced Capital Allowances, lower BIK rates, and eligibility for the Zero Emissions Goods Vehicle Grant,” explained Heather.

“However, we fully appreciate the realities of modern farming and understand the value that many farmers place on double-cab pickups.

“Nevertheless, given these changes, they really must assess whether operating such as vehicle in their fleet makes sense from a tax and cost perspective going forward.”