Pool Cars – Benefits and Tax Traps

Pool car

Are you a business considering the use of pool cars for your employees? Pool cars can provide numerous benefits, such as cost savings, increased efficiency, and improved flexibility. However, it’s essential to understand the tax implications associated with pool cars to ensure compliance and make informed financial decisions. In this post, we’ll explore the key benefits and tax considerations for businesses when it comes to pool cars. Continue reading to find out more, or get in touch today to seek professional advice.

What is a Pool Car?

A pool car (or pool van) refers to a vehicle owned by a company which is made accessible to one or more employees for their use. Typically, a pool car is parked in the company’s designated parking area and made available for any employee who requires it for official company purposes. For example, a company might own a compact vehicle primarily used for collecting items from suppliers or delivering goods to customers.

Why do Businesses Have Pool Cars?

The key advantage of pool cars is their tax-free status, as they don’t offer any personal benefits – unlike company cars, which can incur significant tax implications for both the company and the individual. All pool car-related expenses can be fully accounted for by the company without the usual “benefit in kind” tax assessments typically associated with company cars (e.g., the car’s provision and expenses covered by the company).

What are the Tax Traps with Pool Cars?

HMRC is vigilant in preventing employees from utilising pool cars and vans as their primary company vehicles in an effort to evade company car tax. Business owners often misunderstand the potential tax implications of pool cars if the rules aren’t followed properly, and they need to make sure the vehicle qualifies for pool car status with the following. The car must:

  • Be primarily used for business purposes, with any private use considered incidental
  • Not be exclusively used by one or two employees throughout a tax year
  • Be used by multiple employees
  • Generally not be taken home by an employee overnight, except for specific circumstances that allow for such occasions.

If the car does not qualify with the above, it will be classified as a company car (or van), subjecting it to benefit-in-kind company car tax. Plus, the employer will be responsible for paying class 1A national insurance contributions on this benefit.

Rules on Overnight Stays for Pool Cars

For a car to be considered as not “normally kept overnight” at employees’ homes, the total number of nights it is taken home by employees, regardless of the reason, must be less than 60% of the total nights in a year (typically 219 out of 365 days in a standard year). It’s important to note that HMRC may still challenge arrangements even if the percentage is below 60%, especially if the car is frequently kept at an employee’s home.

Unfortunately, explanations such as the need for security or insufficient office parking will not be accepted by HMRC as valid reasons for keeping the car at an employee’s home. However, there are certain circumstances where HMRC does allow the car to be taken to an employee’s home, such as when an early start to a business trip is planned for the next day.

How to Keep Pool Car Evidence

To establish and demonstrate your intention and operation of a pool car, there are several steps you can take as a limited company:

  • Implement a written policy for employees explicitly outlining that the car is strictly for business use and private use is prohibited
  • Maintain a comprehensive mileage log documenting each journey, including the purpose or reason behind it
  • Keep a record of any instances where the car is stored overnight at an employee’s home, along with the justification for such occasions
  • Ensure that the keys are consistently stored at the office, emphasising that access to the vehicle is limited to work-related requirements
  • Retain evidence showing that your insurance policy covers multiple drivers, affirming that the pool car is authorised for use by more than one individual
  • Regularly inspect the pool car to ensure its condition, including checking tyres, oil, fluids, and overall compliance with duty of care standards

By following these measures, you can provide solid evidence to HMRC of your intention and adherence to the guidelines for operating a pool car within your organisation.

Need Advice on Pool Cars?

Do you need help in optimising your limited company vehicle arrangements? Our friendly team of accountants and tax experts can advise on whether or not a pool car would apply to or benefit your business. We’ve worked with numerous-sized companies from a range of industries – you can message us through our online form, call 01743 562430, or email hello@mercianaccountants.co.uk.

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