The new tax year is fast approaching, and subject to the government’s National Insurance Contributions bill receiving the final royal assent, we will have a new rate of employers National Insurance Contributions (“NIC”) of 15% taking effect for payroll periods commencing April 2025. Here is one potential action employers could undertake to mitigate the effects of this increase.
From April 2025 (1st for companies, 6th for individuals), the new guidance will apply regarding the interpretation of how Double-Cab Pick-Up (DCPU) vehicles will be classified for BIK tax purposes.
HMRC will no longer apply the 1-tonne payload test and will instead consider the primary suitability of the vehicle when it was constructed for BIK tax purposes. On this basis, DCPUs will be considered cars for BIK tax purposes and will, therefore, be subject to much higher tax charges for individuals.
It is important to note that transitional arrangements are in place, and this may impact your business if you order such a vehicle prior to 6 April 2025.
Transitional Arrangements
Where a DCPU is purchased, leased, or ordered before 5 April 2025, the old rules shall apply to that DCPU until the earlier of:
- Disposal of the vehicle;
- Lease expiration; or,
- 5 April 2029
From the point that one of these events occurs, any new or existing DCPUs shall be treated as a car.
Impact on businesses – Capital Allowances
The new tax treatment means that DCPUs will no longer benefit from the favourable capital allowance regime typically applied to commercial vehicles, and instead, they will be treated as cars. Whereas commercial vehicles ordinarily get 100% tax relief against business profits in the year of purchase, cars do not (albeit see electric vehicles above). The capital allowances available for cars are based on emissions, and for DCPUs, they may be as low as 6% per annum.
What do I need to do now?
- If you haven’t done so already, consider if you can purchase a new DCPU before the end of April 2025, extend the lease, or switch to a more tax-efficient vehicle.
- If leases are due to expire after April 2025, make sure you diarise the date to change to a more tax-efficient vehicle!
- Consider electric vehicles (see this article)
For other potential actions employers could undertake to mitigate the National Insurance increases, read this blog.
For more information, please contact Kyle Newton, Tax Partner.
