Pool Cars

Sometimes in a company a member of staff who had a company car resigns and in the current climate, not every role is automatically replaced with a like for like role.  This may result in a ‘spare’ car becoming available in the business and then it is a case of how to deal with it.

If all other roles within the business that require a company car already have one, it can be quite tempting to allocate the spare car as a pool car.  However it is not as easy as saying, ‘this is a pool car’, you do have to put systems in place to ensure it really can be classified as a pool car; it must meet the statutory conditions. The car must be available for business use by several people, and no one person can have priority over it.

Statutory Conditions
If a pool car otherwise called a “pooled” car by HMRC, meets the statutory conditions, it is not treated as a company vehicle.  As a result, the drivers using the vehicle are not liable for the car benefit and fuel charges.  Meeting the conditions is therefore critical.

A car is a pool car if, during a tax year, it has been included in a car pool and all of the following conditions are met:

  1. The car was used by two or more employees, be reason of their employment.
  2. The car was not ordinarily used by one of those employees to the “exclusion of the others”.
  3. Any private use of the car made by each of the employees was “merely incidental” to each employee’s other use of the car in that year.
  4. The car was “not normally kept overnight” at or near any of the employees’ homes (other than at the employer’s premises).

The above are tests of whether a car is a pool car, not whether an employee is using it as a pool car. The starting point is whether the car itself meets the conditions. If one of the conditions is not met, e.g. the car is regularly kept at one of the employee’s homes, the car is not a pool car and, as a result, any private use of the car creates a tax liability, not just for that employee, but for all of the other employees who use the car.

Explaining the terms used in the legislation

  • “exclusion of the others” - This term, used in condition 2 means that the car, while it is a pool car, cannot have a principal driver. The fact that the car may also have been a company car for part of the tax year and, during that time, it had a principal driver does not prevent it from being a pool car, as long as that driver is not one of the drivers now using it as a pool car.
  • “merely incidental” - The term “merely incidental” is not defined in legislation and HMRC has published Statement of Practice SP2/96 Pooled Cars to help clarify. In summary the term, in condition 3, imposes a qualitative test. It refers to the nature of the private use, not the distance covered. The private use of a pool car can only be “merely incidental” to its business use if the private use follows from the business use, i.e. for there to be private use, the car must be used on the same occasion for business use as well. Examples are taking the car home on the evening before a business trip (but see the “not normally kept overnight” rule below) and using the car to go to a nearby restaurant in an evening while away on business.
  • “not normally kept overnight” - This term, in condition 4, is not defined quantitatively in the legislation. HMRC accepts that a car is “not normally kept overnight” at or near the homes of all the employees who use it if this does not happen for more than 60% of the year, usually taken to be 219 days. This rule is for guidance only and has no statutory basis. On the other hand, if the car were kept overnight at the home of one employee for less than 60% of the year, that level of work to home journeys would fail to satisfy the “merely incidental” test.

Employer Responsibility
Employers must ensure that, once a car is designated a pool car, that it is used strictly for that purpose and no other.  You need a Pool Car Policy, A Register of Authorised Drivers and a booking system for people to pre-book the car, ideally one person should coordinate and oversee the pool car usage.  You should have a Vehicle Safety Checklist which can be used daily/weekly and also used to monitor services and such like.  Detailed mileage logs must be kept, showing separately the business journeys and the “incidental” journeys, and the name of the driver for each trip.

A Word of Caution
If a pool car is made available to employees at weekends or for their holidays, the full car benefit and fuel benefit, if appropriate, applies for the period the car was available. The employee could pay towards the private usage and thus reduce the tax charge to nil, but the benefit would still have to be reported on the P11D as a company car.

A similar caution applies where a pool car is taken home at night because there is inadequate parking or security at the company’s premises, or where an unallocated car is temporarily looked after at night by an employee who is not entitled to a company car. These situations would fail the “not normally kept overnight” test and the car would thus become a company car with a taxable charge.

It does not actually have to be kept near the workplace if that is impractical, likely to be damaged or stolen, but HMRC have always refused the "I only take it home to keep it safe" line. A pool car which cannot stay on or near the business premises would need to be kept where the driver would have a significant journey home.

Consequences for Getting it Wrong
Pool cars are an easy and common target during HMRC PAYE Inspections.  An employer who has a ‘pool car’ in name only and does not operate it properly as a pool car will face arrears of PAYE and National Insurance of at least £3,000 per car per year, plus interest and penalties, and such calculations can be taken back as far as HMRC care to go, if the plan has been going on for some time.

This is enough on its own to spell the end for most small companies and, in addition, there is nothing to prevent HMRC from at least mentioning the criminal offence of conspiracy to assist with the evasion of Income Tax.

As always if you need any further information please contact your HR Consultant / HR Manager who will be happy to provide support in this matter.