For employees, the company car can at first seem like a perk, but there are potential downsides. The employer may impose limits on use, to keep costs down and comply with emissions and safety ratings. There is also the issue of Benefit in Kind, where HMRC will assume the employee will use their company car for personal as well as business purposes.
The temptation for many businesses is to avoid Benefit in Kind tax by describing the vehicles their employees use as pool cars. However, this can be a costly decision, because HMRC sees pool cars and company cars as different from one another.
What Defines a Pool Car?
“There are certain conditions which a company must meet if it is going to classify its vehicles as pool cars,” Alan Locke-Timmins, of fleet-servicing specialists, The AYCEN Group remarks. “These generally relate to the car, rather than the individual employee,” he says.
The main points covered are that:
- They must be available to more than one employee, and be used in an employment setting
- One employee doesn’t use a pool car to the exclusion of others
- Any private use of a pool car is merely incidental
- The car isn’t normally kept overnight at or close to an employee’s residence
There is some leeway from HMRC where an employee can take the car home overnight if there is an early enough start the next day. This makes the commute home incidental to the main use of the vehicle.
“HMRC is stringent in how it decides whether a car is a pool car or not,” Alan points out. “They will look at the main conditions in assessing whether a company has assumed incorrectly that its cars are pool cars.”
The Cost of Confusion
If HMRC decides a business has not fulfilled the conditions for running a pool car, then the business may be liable for tax, charges and NIC going back years. Furthermore, HMRC’s calculation of these charges does not take the market value of the vehicle into consideration.
“Even if you originally bought your company vehicles as second hand to save money, it won’t make a difference to what you must pay out if HMRC decide you’ve incorrectly put them down as pool cars
“If a company can prove its cars are, in fact, pool cars, it will need to remain vigilant, as HMRC will conduct follow-up audits every few years,” warns Alan.
“Pool cars and company cars are not interchangeable,” Alan concludes, “and businesses and their employees all need to be aware of this.”