Company cars always require tax and National Insurance (NI) to be paid. However, a pooled company car, used by directors or employees, has no tax implications for the company. This is evidently a great perk, although, for a company car to be considered a pooled company car, it has to meet specific criteria.
What is a pool car?
A pool car or van is a vehicle that does not have any tax or NI implications for the company or employee. In order for a company vehicle to be regarded as a pool car it must not be used for private journeys, or be parked outside a directors or employees house overnight.
Can a pool car be a perk?
Company cars that are pooled are in most cases considered a tax and NI free benefit. There is a clear cut reason as to why these cars are not taxable, and that is because the car does not provide the driver with any type of personal benefit. If the pooled car was to be used for personal journeys, a tax and NI bill would be triggered. Therefore, companies that operate a pooled car must keep within the following conditions:
- The vehicle must not be available for private journeys
- The vehicle must not, under any circumstances, be used for personal private journeys unless they are related to the business use
- The vehicle must be available and used by more than one employee
- No employees can be excluded from driving the vehicle
- The vehicle must not be left over night outside or near the home of a director or employee of the business
As well as meeting the above conditions, we recommend that companies create a policy that outlines the above rules. This policy can then be available to all of the company’s employees, guaranteeing that there is no misuse of the pooled car. Despite the strict rules, HMRC are aware that some personal benefits can potentially be obtained when using a pooled car, without generating a tax charge.
These can occur in the following situations:
Travel incidental to the business travel
If an employee or director is using a pooled car to visit a client, but stops off, on the way, to grab a few things from a local high street. Tax will not be triggered. However, if an employee or director went out of their way to get the items, tax would be triggered. It would be difficult for HMRC to prove the latter, although, you should be aware of what is permissible as incidental use and what is not.
Travel from home
If a director or employee was to take the car home overnight, in order to ensure they get an early start the next day for a scheduled business journey. Tax again would not be triggered. If your company does operate a pooled company car, to be on the safe side and to ensure you avoid any tax charges, ensure all of your directors and employees are logging every mile they have driven whilst out on business.