Pool cars are cars that a business makes available for use by its staff. However, there is strict criteria put in place by HMRC for a car to be considered a pool car and often mistake in pool car policy can lead to taxable benefits and tax charges.
To be considered a pool car and not be classed as a taxable benefit, then the following conditions must be met in the tax year to achieve pool car exemption:
- The car was made available to more than one employee and was used by more than one employee.
- The car was made available due to the employee’s employment.
- The car was not ordinarily used by one employee to the exclusion of others.
- Private use of the car by an employee should only be incidental to the business use.
- The car is not normally kept overnight at or near residential premises where the employee lives.
HMRC regularly carry out inspections of PAYE records and returns, and in these inspections, they will almost always review pool car and company car arrangements. HMRC will expect businesses to be able to substantiate that the above conditions have been adhered to and best practice is as follows:
- Keep a log of who has used the car, for what business reason, the places travelled between with full addresses, and the mileage before and after each use.
- Prepare a pool car policy for the company that specifically states who the pool car can be used by, that private use is not allowed, and that the car must be kept on site overnight unless specifically approved in specific circumstances.
- That the car insurance policy states that the use is strictly business use only and does not allow for any personal use.
If the pool car exemption does not apply, then it is highly likely that there will be a car and fuel benefit in kind to be reported on a P11D, with tax paid by the employee and National Insurance paid by the company on the benefit.
Where you are considering purchasing a pool car, it is important that you get the details right and if you have any questions on this, please call your Drummond Laurie contact.