A dip into pool cars!

The conditions for a car to be a pool car include that:

• the car was made available to, and actually used by, more than one employee;
• the car was not ordinarily used by one of those employees to the exclusion of the others;
• in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year; and
• the car was not normally kept overnight on, or in the vicinity of, any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.

If all conditions are met, no taxable benefit arises on those who have had use of the car.

‘Merely incidental’

If the private use is in some way a result of the business use, it can be considered merely incidental. Private use being small in comparison to the business use is not, on its own, sufficient to meet the test.

For example, if an employee takes a car home to make an early start on a business journey the following morning (where that business journey could not reasonably be undertaken the next day starting from the normal place of work) then the journey from work to home, although private, is merely incidental to the business use. This would also be the case if an employee who is staying away from home overnight on a business trip uses the car to go to a nearby restaurant in the evening.

A recent case

The issue of pool cars has recently come up before the Tax Tribunal.

At a 1993 meeting, the HMRC inspector made a representation to a company director as to what was required for a car to be a qualifying pool car. Among the conditions mentioned was apparently that “… each employee who had use of the car owned another car which was available for private use.”

This representation was relied upon by the taxpayer, but many years later HMRC sought to collect Class 1A National Insurance from the company on the benefits provided, having concluded that certain cars leased by the company were not pool cars.

The Tribunal agreed with HMRC, concluding that the director and his family members clearly used the cars for private purposes that were not merely incidental to business travel.

The appellant advanced further arguments about what they saw as the unfairness of the situation, but the Tribunal found that:

• HMRC could not be stopped from enforcing a statutory provision; and
• the Inspector had had no authority to enter into a forward agreement relating to the company’s tax position.

Don’t rely on things that HMRC may or may not have told you. Please speak to us to check on the correct tax treatment of what you are undertaking.

Note

As there is no private use, VAT is (in principle) recoverable on a pool car, unlike a normal business car with private use. However, for capital allowances purposes, pool cars are governed by the normal rules for cars, meaning that they do not qualify for annual investment allowance (AIA) or ‘full expensing’. You therefore cannot (with the current exception of zero-emission vehicles) write the cost off immediately for tax purposes.