Many see the company car as an employee perk, albeit an expensive one when it comes to tax. Classifying the car as a Benefit in Kind is the downside, with HMRC assuming you will use it for personal as well as business purposes.
Some employers recognise this pitfall and try to sidestep it by arguing that the cars they provide are pool cars, made available for employees to share.
However, this is a confused approach to company car policy, because pool cars and company cars are different.
Pool Car Conditions
“The pool car option seems an attractive one, because it appears to avoid being a Benefit in Kind, so not incurring related charges,” observes Alan Locke-Timmins of the fleet-servicing specialists The AYCEN Group.
What Alan points out, however, is that there are certain conditions which a company must meet if it is going to classify its vehicles as pool cars.
“These conditions generally relate to the car, rather than the individual employee,” he says, “but while there are some grey areas, they make clear points about the dos and don’ts.”
The main points are that:
- The pool car must be made available to, and used by, more than one employee as part of their employment
- It is not used by one employee to the exclusion of others
- Any personal use is merely incidental
- The car isn’t normally kept overnight where an employee lives
In practice, HMRC guidance does allow for employees to take pool cars home overnight if they need to make a long business journey the following day. In these cases the office to home part of the journey is regarded as incidental.
Paying the Price
“If a company assumes incorrectly that its car is a pool car, this can prove costly,” Alan warns.
“If HMRC decides that a company has not fulfilled pool car conditions, they may then be liable for tax, charges and NIC liabilities going back several years”
Alan points out that even if a business buys its company cars second-hand, but mistakenly treats them as pool cars, HMRC’s calculation of car and car fuel benefit-in-kind charges will not take current market values into account.
“It comes down to the facts in the end,” says Alan. “Businesses must be ready to demonstrate to HMRC that they’re meeting all the conditions, including providing documentary evidence.”
Even if they prove the car is a pool car, HMRC are likely to make periodic checks that they are still meeting the conditions.
“When it comes to cars and looking at your business’ needs, don’t make assumptions about the interchangeability of pool cars and company cars,” Alan advises, “because it may well cost you.”