TAX - COMPANY CARS - 12.11.2018

The trouble with pool cars

Guaranteed car trouble

Two words guaranteed to raise a tax inspector’s eyebrow are “pool car”. Because there’s no tax or NI charge for company pool cars inspectors often equate them with tax evasion. While the conditions for a car to count as a pool vehicle are tough, they are achievable. The trouble is that in practice it’s not enough to meet the conditions, you must be able to show that they’ve been met. In short, it’s not what you do it’s what you can prove you’ve done.

Pool conditions

A company car used by a director or employee is potentially a taxable perk, even where it’s only used for business. The tax charge arises where the car is “available” for private use. Actual use is less important. Therefore, the first step to avoid a tax charge is to communicate that it’s not available for private journeys, which includes commuting between home and the normal workplace. Further, the car must:

• be available and used by more than one employee
• not usually be driven by one employee to the exclusion of any other
• not be used for private journeys unless they are incidental to the business use
• not normally be kept overnight at or near to a director’s or employee’s home.

Tip. Your pool car agreement can be set out in a separate document or as part of your company’s staff handbook (see The next step ). Either will suffice to demonstrate the “no availability” requirement and satisfy HMRC. Of course, the other conditions must still be met.

A little private use is OK

There are two situations where private use of a pool car is allowed; where a director or employee:

• takes the car home overnight solely so they can get an early start for a business journey the next day; and
• where private use of the car is incidental to a journey which is made in the course of their job. For example, an engineer visiting a customer, without extending his journey, does some sightseeing in the local area.

Trap. Incidental private use is often misunderstood as meaning minimal private use. The two are quite different. Any private journey, no matter how short, will fail the penultimate condition mentioned above.

Tip. In practice HMRC would probably overlook very occasional minor breaches of this rule mainly, we suspect, because it’s almost impossible for it to prove that private journeys were made. However, your records should not leave any gaps which HMRC can pry into.

It’s a record

Keep scrupulous records so as not to give HMRC a reason to suspect that a car was used for private mileage (see The next step ). If you are clear and accurate with the records that’s at least half the battle won. Ask drivers to keep a log of every mile driven in the car on business and ensure that it tallies with the in-car odometer.

For an employee pool car agreement and a pool car journey record, visit http://tipsandadvice-business.co.uk/download (CD 20.04.03).