Pooled company cars are tax and NI free for the employees who drive them. However, HMRC closely scrutinises any claim for pool car treatment. What key conditions should you impose on the use of a car to keep on the right side of HMRC?
Is a pool car a perk?
Pooled company cars are often seen as a potential tax and NI-free benefit in kind, but with tricky qualifying conditions. We think that’s the wrong way to look at them. The reason they aren’t taxable is because they must not provide the user with any personal benefit. The qualifying conditions are tough to ensure that a tax and NI bill occurs where a benefit arises. The real trick is keeping in line with these so you don’t get hit for tax and NI in a situation where you actually gain very little personal benefit from using the car.
Any company car used by a director or employee is potentially a taxable perk, even if it’s only used for business, and several tribunal decisions have gone HMRC’s way to prove the point. Company car drivers can rely on the pooled car get-out only where the vehicle is not available for private journeys and all the following conditions are met. The car:
- must be available and used by more than one employee
- must not usually be driven by one employee to the exclusion of any other
- is not used for private journeys unless they are incidental to the business use (see below)
- is not normally kept overnight at or near to a director’s or employee’s home.
The first step to ensuring that pooled car users aren’t clobbered with a tax charge is to set a company policy that the vehicle isn’t to be used for personal journeys. This can be set out in a separate document or as part of your company’s staff handbook. In practice, HMRC accepts some personal benefit can be obtained from using a pooled car without triggering a tax charge in two situations.
The first situation where personal travel in a pool car is permitted without triggering a tax charge is where a director or employee takes it home overnight solely so they can get an early start for a business journey the next day.
Also, directors and employees won’t be taxed for obtaining a personal advantage from using a company pool car where the use is incidental to the business travel. For example, a sales rep is visiting a customer and, without driving the car further, takes the opportunity to do some sightseeing or shopping in the local area.
Trap. Don’t confuse incidental with minimal personal use. Strictly, the latter results in a tax charge. For example, had the rep clocked up a few more miles to do his sightseeing that would not count as incidental and so a tax benefit could arise. In practice, HMRC would probably overlook occasional minor breaches of this rule mainly, we suspect, because it’s almost impossible for it to prove that personal travel took place.
Tip. Don’t give HMRC a reason to suspect that a car was used for private mileage. Ensure drivers keep a log of every mile driven in the car on business and that it tallies with the odometer in the vehicle.
Having systems in place to document journeys in real time can help you to build up your defence any time HMRC may come knocking...