The benefit in kind for 2016/17 on a car with CO2 emissions of 130g/km will be 23% of its list price. For a £15,000 car provided to a higher rate taxpayer, this will result in a tax charge of £1,380, compared to £900 just five years ago.
Businesses have been looking to alternatives and many have decided to operate a pool car system that does not give rise to a benefit in kind. However, sometimes the car a company refers to as its ‘pool’ car does not qualify as one for the purpose of tax legislation.
To qualify as a pool car the vehicle must meet several conditions, the first of which is that it is available to, and used by, more than one employee. It is, therefore, not enough to just state that a car can be used by all the employees if, in reality, only one ever does.
Furthermore, one employee cannot use it to the exclusion of the others. For example, if three employees have access to a car and one employee uses the car every day, whilst the other two employees only use it when the first employee is on holiday, the car may not be deemed a true pool car.
It must also be used ‘by reason of the employee’s employment’, i.e. for business purposes and any private use by an employee must be ‘merely incidental’ to the employee’s business use of it. HMRC regard this as a qualitative statement, that the phrase ‘merely incidental’ does not refer to private mileage compared to business mileage, but the private element of a journey as a whole. For example, they state that an employee who takes the car home in the evening in order to allow an early start on a long business journey the following day would pass the ‘merely incidental’ test (so long as this does not become a regular occurrence).
We would advise that a clause should be included in the relevant employees’ contracts stating that there must be no private use of the pool car, stating disciplinary consequences for any deviation from this policy. This would strengthen the employer’s position should HMRC challenge the vehicle’s pool car status.
The car must also not normally be kept overnight in the vicinity of the employees’ homes. Here, a rule of thumb is that the car is deemed to be normally kept overnight if it is at an employee’s house for 60% of the nights in the year.
If the car fails one of the conditions it is not a pool car and a benefit will arise, possibly on more than one employee. For further details, please get in touch with a member of the Tax Department.