When an employee has access to a car provided by their employer, it usually results in a company car benefit-in-kind (BIK). However, if the car is classified as a “pool” car, then no taxable benefit arises. So, when is a “pool” car, not a “pool” car?
Company Car Tax
A company car is a common employment benefit, especially for senior employees.
It’s interesting that despite the very high tax charges it remains a popular option. One reason being the salary sacrifice scheme is restricted just to electrical vehicles.
The other reason behind the popularity of company cars is that they offer employees the chance to access a new vehicle that they might not be able to afford otherwise.
A pool car does not need to be reported on a form p11d and escapes the company car regime altogether.
However, a pool car is typically a car that’s made available to a group of individuals.
Conditions of a company “pool” car
When is a pool car, not a pool car? To qualify as a pool car, all five of the following conditions must be met:
- The vehicle is made available to, and used by, more than just one employee.
- The vehicle is available to employees because of their employment.
- The vehicle is not used by one employee to the exclusion of the others.
- Any private use of it made by the employee was merely incidental.
- Is not normally kept overnight on or in the vicinity of any residential premises of any of the employees.
Just to be clear, when we talk about “employees” we mean anyone who is on the payroll including the directors. If you have provided a car for your directors and senior managers, but only the sales manager has exclusive use of it, then it may not be considered a pool car.
A deeper look at the conditions
The first three conditions are relatively easy to understand.
Condition four is the most disputed, as private use refers to any use other than for business travel. Business travel will generally include:
- journeys that employees must make in the performance of their duties; and
- journeys that employees make to or from a place they have to attend in the performance of their duties
- but not journeys that are ordinary commuting or private travel.
‘Ordinary commuting’ is always private and the one point that always causes issues.
In the recent case of Nduka, he attended two different hospitals to which he travelled from two different locations where he had homes.
He claimed tax relief for additional costs for travel to one of the hospitals when he was staying away from the home he usually occupied. The Tribunal refused his claim because the journeys were ordinary commuting.
‘Private travel’ is another sticking point with HMRC.
For example, if you do a business-related journey, you can ignore incidental mileage for going to a shop or café to pick up lunch. But, using the car to do regular shopping for groceries would be classed as none business use.
HMRC also accepts that if an employee is to make an early business journey in the car the next day, then the journey from the office to home, the evening before, is merely incidental. However, condition five should be kept in mind here.
The fifth condition can present problems for smaller businesses with a relatively low number of employees.
Again, HMRC accepts that a car is not ‘normally kept overnight’ at employees’ homes if the total number of nights on which it is taken home by employees, for whatever reason, is less than 60% of the total number of nights in the period under review.
However, the guidance is merely a rule of thumb, and if the 60% threshold is close to being breached, HMRC will take a closer look at whether any home-to-work travel is ‘merely incidental’.
Avoiding issues with HMRC
Pool cars are often scrutinized by HMRC, which is not surprising. To protect yourself against potential challenges, you should have a clear policy that prohibits the private use of pool cars. Plus keep thorough records that demonstrate the policy is being followed in practice.
It is good practice to have a policy for the use of the pool car(s) as well.
What’s more, you should keep a detailed log to show:
- which employees have used the car,
- the purpose of the use,
- the destinations to and from (including the postcodes) the place of travel,
- the mileage before the car was used and the mileage at the point of return.
By doing the above you are demonstrating that you are monitoring the use of the pool car. You are also making sure employees who are using the car understand the use of the vehicle is for business purposes only.
You should ensure that your staff manual includes these details, as HMRC inspectors may ask to see it.
What should you do next?
You need to double-check that the car you have classed as a “pool” car is truly a pool car or is it a company car?
To determine if a car is a pool car or a company car, you need to ensure that all the five conditions mentioned above are met. If any of the conditions are not fulfilled, you are likely providing a company car to an employee.
Remember you need to complete form P11d and report the benefits. Ask these two questions:
- Was the car available for at least 30 consecutive days? If so a P11d will be necessary.
- Can the BIK benefit be reduced? The taxable value will be reduced for the proportion of days where it was unavailable.
If you have a pool car, ensure everyone is aware of the clear and documented policy.
Maintaining accurate records may seem cumbersome, but it can result in a favourable review from HMRC inspectors. Any discrepancies are usually detected during routine payroll checks.
You can find the government guidance here
If you have any questions on this topic, please email your normal manager. If you are not yet working with us please contact our Head of Payroll Priya who will be happy to assist you.