With company car tax set to rise again it’s important that you’re completely up to speed on where savings can be made. One potential saving is through the use of ‘pool’ cars. But, how do you go about it without getting on the wrong side of HMRC?
Company cars vs. pool cars
Since 2002 individuals with a company car have been taxed according to their vehicle’s list price and its CO2 emissions. However, in recent years the bands have been getting tighter as a way of increasing the tax that drivers have to pay. And it doesn’t look like things are set to get any better, with promises of even higher charges over the next two years included in this year’s budget. However, this plan doesn’t apply to pool cars.
What is a pool car?
Essentially, it’s a car that’s available to, and used by more than one employee for business purposes only, i.e. it isn’t for the exclusive use of one employee on a daily basis. Additionally, it must be kept at your company premises overnight. That means that generally you can’t keep it at your home and use it to drive to and from work. You are also forbidden from using it for personal use.
What the taxman thinks
HMRC is suspicious of businesses that claim that they operate a pool vehicle or vehicles. This skepticism may come from disbelief that individuals could resist the temptation of using a vehicle for personal use; perhaps they think that a true pool car is very rare indeed.
Is it worth the hassle then?
Well, there are ways around some of the rules:
1. If your company has several employees who travel frequently for business, then the ‘pool’ cars can be rotated around the employees to prove that one car isn’t for the sole use of an individual employee.
2. It’s worth the business keeping a record of who has been driving each car on each day, and the exact distances they’ve driven in it. This will keep them and you covered should you ever receive a query from HMRC on whether you’re meeting pool car conditions.
3. If you need a pool car to use for a business trip that starts from your home the next day, then you are within the conditions of pool cars to have it parked at your home address overnight. However, this doesn’t mean that you can use the car for personal use that evening.
The financial benefit of a pool car
A quick example would be if you are a higher rate taxpayer and have a company car with a list price of £22,000 and CO2 emissions of 150g/km. This would mean that you would have a yearly tax bill of around £2,376 and an additional £820 in national insurance to pay.
If your company has a number of vehicles, this could add up to a substantial amount for HMRC over the average four-year lifetime of a vehicle. However, it does save the employer some national insurance contributions.
So, if your company was to a have pool cars for their employees to use instead of individual company cars, then you could use the tax savings to buy a decent car for your own personal use, and use the pool car solely for business purposes as and when required.