Much is made of the tax savings that can be achieved by convincing HMRC that a car or van used by employees for work is a pool vehicle. But even if a pool car is not used for any private journeys, there are still plenty of hoops to jump through. Naomi Swan looks at this in more detail.
By their very nature, pool vehicles are not intended to be employee perks. Rather than that, they are something that employers provide so that employees can do their jobs. However, HMRC’s tough conditions make it quite a challenge to achieve pool car status, as illustrated by the following example.
ABC provides and services heating systems across the UK. Its engineers on average cover around 45,000 miles per year for work. Given the high mileages the company provides cars and vans for its employees. It’s quite clear that their primary function is as a tool of trade. However, unless ABC meets HMRC’s unusually tough conditions it can land each of its employees with a hefty tax bill and itself with one for Class 1A NI, even though in reality ABC’s employees have gained no personal benefit from using the vehicles.
A car or van can count as a taxable benefit in kind even if it’s not used for any private journeys. Merely being available for private journeys is sufficient to cause a vehicle to fail the pool car status conditions and result in tax and NI charges.
To qualify as a pool car vehicle all of the following five conditions must be met:
1. The vehicle is made available to, and actually used by, more than one employee for their work (and not for private journeys).
2. It’s made available by reason of the employee’s employment, i.e. it’s not available to someone who is not employed by the employer, e.g. a member of an employee’s family.
3. The vehicle is not ordinarily used by one of those employees to the exclusion of the others.
4. Any private use by the employee is merely incidental to the employee’s business use.
5. The vehicle is not normally kept overnight on or in the vicinity of a residential premises where any employees who use it reside, except while on premises occupied by the person making it available to them.
In practice, HMRC won’t dispute pool vehicle status if there is insignificant private use. In its internal guidance it gives the following as an example of insignificant private use: “making a slight detour to pick up a newspaper on the way to work”.
Providing the evidence
HMRC takes a strict line on the conditions for pool vehicles. It seems to consider with suspicion any claim that a car or van is a pool vehicle. It’s therefore important not only to meet the conditions but to have evidence to support this, including:
• A copy of your policy for use of pool cars which should state that vehicles must only be used for business journeys.
• A record of every journey made in a pool vehicle stating the date, start and end location, start and end mileage per the odometer and the purpose of the journey.
Five conditions must be met to achieve pool vehicle status. Two of these can cause problems even for genuine pool vehicles: the car or van must not be available for private journeys or kept overnight near an employee’s home. So, you should include these conditions in your pool car policy and ensure details of all mileage in pooled vehicles is logged.
If you would like to discuss this further or have similar queries please do contact our team.