As business accountants, we regularly discuss with owners the issues surrounding the use of cars inside a limited company.
Outside of the use of electric cars, company cars will cause significant tax issues for the company – and any owners that have access to them.
If you discuss this with a roomful full of business owners, you will often hear the term ‘pool car’ discussed. Which leads to the question…
What is a pool car?
A pool car is a company vehicle that is available for use by employees of that company. Generally, it would be left in the company’s car park for use for company business by whoever needs it.
For example, a business may have a small ‘run around’ used to go and pick up items from suppliers, or drop off items to customers.
Why do business owners like the idea of a pool car?
Simple – they are tax free. In contrast, company cars can have horrendous tax treatment both for the company and the individual, in return for the benefit of having the company supply the car – and pay for it!
Pool cars are deemed not to have a personal benefit, so there is no tax bill. All the costs of the car can be put through the company, with none of the personal ‘benefit in kind’ tax bills usually associated with company cars.
What are the tax traps with pool cars?
The great tax result of pool cars means owners instantly start to imagine a scenario where that brand new top of the range Land Rover can be a pool car.
Unfortunately, the law is pretty clear on what is needed to qualify. The car must:
- Be used for business purposes – any private use of the car is ‘incidental’.
- Not be used exclusively by one or two employees in a tax year.
- Is actually used by more than one employee.
- The car is not normally taken to an employee’s home at night (there are occasions you can).
Overnight stays with employees
A car is not counted as ‘normally kept overnight’ at your employees’ homes if the total number of nights on which it is taken home by employees, for whatever reason, is less than 60% of the total number of nights in the year (219 out of 365 days in a standard year).
HMRC also note that they will challenge arrangements even under 60%, where a car is held at an employee’s home on a large number of occasions.
Sadly, saying that the company is keeping the car at home for security reasons, or because there is not enough parking at the office, will not work.
There are some further times where HMRC will accept the car going to an employee’s home, such as an early start to a business trip the next day.
Practical tips on how to have a car count as a pool car
If you are going to operate a pool car, there are some things you can do to provide evidence of your intention and operation of the car.
- Have a written policy for employees on the use of the car, explicitly stating there is to be no private use.
- Keep a mileage log with details of journeys and their reason.
- Keep a record of any nights the car is kept an employee’s home and the reason why.
- Have the keys kept at the office.
- Keep evidence that your insurance covers more than one person to drive.
Still puzzled about pool cars?
Ask your accountant or book a consultation with us to help you make the most of your company vehicle arrangements. We offer a paid 1-hour, 1-2-1 consultation so you can ask simple questions of an accountant. You don’t have to become a client, so it’s a great way for you to get the help, when you need it.