WHEN is a pick-up truck a private car or when is it a Light Commercial Vehicle? Depending on your usage there may be tax benefits although these may seem confusing on the surface.
Understanding the pick-up tax advantages whittle down to just four key elements, according to pick-up specialist Isuzu.
- Understanding LCVs
The first thing to know is that to meet the tax benefit requirements, each pick-up must be classed as a Light Commercial Vehicle (LCV).
While all single cab pick-ups automatically receive this classification, any other cab style must have a payload of at least 1 tonne to be classed as an LCV.
Remember: Hardtop canopies will reduce the payload of your pick-up. For more information on pick-up payload, click here.
- Benefit-in-Kind rates
Benefits in kind, also known as ‘fringe benefits’, are perks received by employees or directors from a company. They do not form a part of someone’s salary but instead come in the shape of assets or services such as a company car or private healthcare.
As these perks are still taxable, there are certain rules around Benefit-in-Kind (BIK) tax rates on company vehicles. With company cars, the BIK tax rate is taken as a percentage of the vehicle’s list price, with the percentage itself being directly linked to the vehicle’s CO2 emissions. This means that if the car has higher CO2 emissions, the BIK percentage of the list price will increase.
With pick-ups, however, there is a fixed BIK rate at £3,600 for tax year 2022/23. This means that the amount paid is not affected by CO2 emissions, and is just calculated using your tax bracket. Therefore, the annual tax for a 20% taxpayer would be 20% of £3,600 (£720), with a 40% taxpayer paying 40% of £3,600 (£1,440).
- VAT refunds
Assuming that the business is VAT registered, all LCVs qualify for VAT reclaims. The amount of reclaimable VAT depends on how much the LCV is used for business purposes compared to personal use. For example, if the vehicle’s business use is 70%, then 70% of the VAT can be reclaimed.
Cars, on the other hand, only qualify for VAT reclaims if they are used 100% for business. This means that a driver who travels to work in the car would lose all the reclaimable VAT, whereas only a percentage would be lost with a pick-up truck.
- Capital Allowances
LCVs also qualify as ‘plant and machinery’, meaning the purchase cost can be written off through Capital Allowances (CAs) reducing your business profits. Until 31 March 2023 a ‘super deduction’ is available for any new LCV purchase allowing you to claim 130% in-year tax relief. Purchases after this date remain qualifying for the Annual Investment Allowance so you can offset the full cost of the LCV in the first year. This is significantly quicker than with company cars, which have a write-off rate as low as 6% a year.
However, HMRC is pretty hot on whether your pick-up is an LCV used for business or whether it’s a private car. HMRC guidelines as set out for some years concern the load-carrying capability of the vehicle as used and whether it is solely used for business (in which case it is a van) or if it has private use, in which case it becomes classified as a car for benefit in kind purposes. Check out their guidelines.
However even if it is classified as a car for BIK purposes, it is still a van when it comes to road tax. HMRC has accepted that a double-cab pickup with a payload in excess of one tonne is, for BIK tax purposes, a van.
Double-cab pickups are popular with small businesses because they are flexible, versatile, and economical. Builders, plumbers, electricians, and lots of other trades use them because they are great for carrying equipment and supplies during the week and comfortable enough to double as a family car at the weekend.
There are also canny company car drivers who have cottoned on to the lower tax rates and use them as regular company cars. The high-end models are just as well equipped as a regular car. This case highlight that drivers hoping to dodge the BIK tax bullet can come unstuck if they don’t read all the small print (or get an expert to do it for them).
