Is Your Company Car a Benefit-In-Unkind?
Do you see the company car as an employee perk, albeit an expensive one when it comes to tax? The downside is that the company car is classified a Benefit in Kind. HMRC assumes that you’ll use it for personal as well as business purposes.
For some employers recognising this pitfall, the temptation is to try and sidestep it. They do this by arguing that their cars are pool cars, available for employees to share.
This, however, is a confused approach to company car policy, because pool cars and company cars are different. HMRC is aware of this difference, and will charge you accordingly.
Conditions for Running a Pool Car
The pool car option might seem like an attractive option, because it looks like it avoids the car being a Benefit in Kind. But HMRC sets clear conditions which you must satisfy for your vehicle to be viewed as a pool car.
These conditions generally are about the car, not the individual employee driving it, but while they allow for some grey areas, they are quite clear about what is or isn’t a pool car.
Here are the key points in HMRC’s conditions for pool cars:
- the car must be made available to more than one employee, and used within the context of employment
- one employee shouldn’t be using it to the exclusion of others
- the vehicle shouldn’t be kept overnight where an employee lives
- any private use is merely incidental
Realistically, HMRC’s guidelines recognise that in practice, employees may have to take a pool car home if they have a long business journey with an early start the next morning.
Paying the Price for Confusion
Muddying the difference between a company car and a pool car is likely to be a costly error.
HMRC could make you liable for payments related to company cars and Benefit in Kind going back several years, if they decide you’ve not fulfilled their conditions
Businesses should also note that HMRC won’t take the market value of your vehicles into account if this happens. So, if you bought your cars second hand to reduce costs, you might still end up paying out a large amount for mistakenly describing them as pool cars.
Company cars and pool cars are not interchangeable. If you assume that they are, you are likely to end up paying for it.