Instead of providing specific company cars for your employees, which leads to a benefit-in-kind tax bill, you may find it more tax-efficient to allow employees to use a number of available cars for business trips.
This is known as carpooling.
Subject to certain conditions, there may be no taxable benefit-in-kind on employees who use a pool car. Watch our video to learn more.
What are the conditions to be a pool car?
All five of these conditions must be met for a car to be seen as a pool car for tax purposes.
- The car is available and used by more than one employee.
- The car must be used for employment purposes.
- The car is not used mainly by one employee over the others.
- Any private use of the car must be purely incidental due to the use of the car for the company.
- The car is not ordinarily kept at any employees’ homes overnight.
How can private use be ‘purely incidental’?
HMRC describe the test of the car being used for business purposes as a qualitative test rather than a quantitative test.
So, in other words, it’s not based on how many miles you drive for private use, but instead based on what the actual use for the car was.
For example, if your employee was expected to set off early the following morning they would be able to take the car home, as it would be ‘purely incidental’ that they had to take the car home in order to facilitate the early start the next day.
What is the 60% test with regards to keeping a car overnight at an employee’s home?
Basically speaking, it must not normally be kept at the employee’s home.
HMRC will accept this condition as met if the car is kept at the employee’s home for less than 60% of the total number of nights that the car is used for business purposes.
When could a benefit-in-kind tax charge arise?
If the car does not meet the conditions above and can be used for private use as well, a tax charge will arise under the company car tax rules.
In summary, pool cars can be used to avoid benefit-in-kind tax charges, but you must make sure you meet all of HMRC’s conditions.
If you’d like to know any more, please get in touch with us.
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