October 29th, 2012 / Insight posted in

Cut the tax bill by using pool cars

WT writes: I am setting up a sales operation that will include employing two technical salesmen. They will be spending much of their time visiting customers and will need cars. The annual mileage is likely to be high, so they would prefer company cars rather than use their own. Is there any way to avoid the tax on the personal benefit in kind?

Where a vehicle is made available to an employee for private use, a personal tax liability will arise on the benefit in kind, which the individual is responsible for paying, writes Jon Sutcliffe, partner at Kingston Smith LLP. It is theoretically possible to avoid the benefit in kind by treating the vehicle as a pool car (or van), which means it is available for business use by a number of employees. 
However, HM Revenue & Customs (HMRC) will impose a high level of proof on the employer before agreeing a vehicle is a pool car. It will require five conditions to be met.

  • The vehicle is made available to, and actually used by, more than one employee.
  • The vehicle is made available by reason of the employee’s employment.
  • The vehicle is not ordinarily used by one of those employees to the exclusion of the others.
  • Any private use of the vehicle is merely incidental to the employee’s other use of it.
  • It is not normally kept overnight on, or in the vicinity, of any premises where any of the employees live.

The “merely incidental” use is also restrictive and might include taking a vehicle home the night before a long business trip. In practice, HMRC also wants to see that private use is prohibited in employment contracts and that the vehicle is insured only for business use. There are cases where a mileage log has not been sufficient to prove a vehicle is a pool car, so care should be taken to demonstrate the conditions have been fulfilled.