Pool vehicles – an overview
Thinking about opening a local corner shop? What about a cash and carry? Maybe even a food delivery service? These are a few business ventures you could hope to pursue but they all have one thing in common – you will most likely need a company vehicle to meet business demands.
When it comes to HMRC, even the seemingly simplest things become a minefield, and vehicles are no exception. Depending on which vehicle you buy, how it is used, and who by, you could suffer a significant tax impact. One tax-efficient way of using it is by establishing it as a pool vehicle. This avoids the benefit in kind tax charge that would annually be paid by the employees.
In order for a vehicle to be a classed as a pool vehicle, it must satisfy the following five conditions:
- It is available to, and actually used by more than one employee.
- It is made available, in the case of each of those employees, by reason of their employment.
- It is not ordinarily used by one employee to the exclusion of others.
- Any private use by an employee is merely incidental to their business use of it.
- It is not normally kept overnight on or near the residence of the employees unless it is kept on premises occupied by the provider of the car.
Most of these conditions (the first three) are straight forward and easy to understand, however the latter two may need further clarity.
In the fourth condition, uncertainty commonly lies around the term ‘merely incidental’. It is important to understand here that if a company vehicle is being used for private use, it should be as a result of the business use. If the company vehicle is used privately, independent to business use, then the condition has not been met. Here’s an example:
An employee on a business trip may stay away from home overnight. They use the car to go to a restaurant/takeaway. This can be classified as ‘merely incidental’ due to the importance of the business journey and overnight stay.
To satisfy the final statement, it is important to note that the company vehicle should not be kept overnight on or near an employee’s residence for more than 60% of the total number of nights in the period under review. This is not specifically mentioned by HMRC in the legislation but this percentage should be considered as a general benchmark.
It is important for employers to demonstrate these conditions have been met. A good idea would be to keep mileage records/receipts to show when the vehicle was used and by which particular employee.
If you run a business where you provide a vehicle to employees but are not sure if it meets the requirements of a pooled vehicle, then please get in touch and we’d be happy to help.