The last week or so has seen something of a “flip flop” from HMRC around the treatment of dual cab pick-ups for income tax and national insurance purposes. Historically these vehicles have been considered to be vans for these purposes. Then in mid-February HMRC announced that in future they would be considered cars. A week later a further announcement confirmed that was not going to be the case. The old treatment would continue to hold good… This was off the back of representations particularly from the motor industry and also from rural businesses.
Those who have never considered this issue might be wondering why this was potentially such a big issue. Why two such diverse industries mobilised quickly enough to change the government’s mind in such short order… The answer lies in the amount of tax an employee might pay if they are provided with one of these vehicles by their employer and they can use it privately. In those circumstances, the employee pays tax on the “value” of the benefit of being able to use the vehicle for their private purposes – a so-called benefit in kind. The way that value is calculated is radically different. This depends on whether the vehicle is classified as a van or a car.
Here’s the techy bit. For benefit-in-kind tax purposes, any mechanically propelled road vehicle is considered a car – unless it isn’t… There are certain exceptions to this very broad definition. This includes the most relevant in this situation – a goods vehicle is not a car for these purposes. A goods vehicle is defined as a vehicle of construction primarily suited for the conveyance of goods or burden of any description. A further boundary is set at a design weight of 3,500kg. Above that the vehicle is a heavy goods vehicle, below that the vehicle is a van.
What the change in rules HMRC meant was that, after many years of treating these vehicles as vans, they had now decided that dual-cabs were not vehicles primarily suited for the conveyance of goods etc – so they fell back into being treated as a car for tax purposes.
Consider firstly if the dual-cab is treated for tax purposes as a van, where an employee is provided with a van by their employer and they can use it privately, they pay tax on what is known as the “van benefit charge” amount of £3,960 for the 23/24 tax year. For a basic rate taxpayer this would give tax of £792. A higher rate taxpayer would pay £1,584 in tax. The individual’s employer would pay employer’s national insurance of £546 for the privilege of providing the benefit. If the van comes with fuel, the extra benefit for that would be £757 for a year, giving an extra £151 or £303 of tax for a basic/higher rate taxpayer respectively.
Assume instead the employee’s VW Amarok TDi (other vehicles are available) is treated as a car. Let’s assume the car has a list price of £42k and CO2 emissions of 22og/km. This gives the driver a benefit in kind value of £15,540 (37% of the list price). This gives a basic rate taxpayer tax of £3,108 and a higher rate taxpayer £6,216. A whopping increase of £2,316 and £4,632 respectively. Add fuel from the employer into the mix and that increases the tax bill for the employee by £2,057/£4,116 for a basic/higher rate taxpayer… The employer’s’ national insurance bill would also increase very significantly at the same time.
Taking the above numbers into account it is hardly surprising that the suppliers and users of these vehicles were a bit disgruntled by the sudden change, and why they seem to have got into gear (sorry) so quickly to resist the changes… HMRC was going to allow those who currently drive or who had already ordered vehicles to keep the old treatment for a few years (or until they changed vehicles). It's not hard to see why vehicle suppliers saw the market for these vehicles falling off a cliff once the new rules came into force… Their response was very effective given how quickly HMRC did their handbrake turn on the proposed changes…
Presumably, this matter is now settled for the foreseeable future. Drivers of these vehicles can rest a little easier as a result. One can’t help wondering whether HMRC might have consulted with stakeholders before the announcement. This may have prevented a lot of fire and fury and the need to go into reverse in record speed…
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