Company cars – a game of pool

23 June 2009

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There are plenty of myths about the tax rules on company cars, but you should believe them at your peril as getting it wrong could result in a costly investigation by HM Revenue & Customs. Here, we bust some of the most common myths and let you know when you really don't have to pay tax on a car benefit.

Common company car myths

You don't have to pay tax if the firm's name is painted on the car.
This is not true, such a car may be a pool car, but it may not be.

You don't have to pay tax if you use the car for work.
Not so, it is what you do with it at other times which makes it taxable.

You don't have to pay tax if other people can drive it.

No, it is not who can drive it that matters, but who has the use of it outside working hours.

You don't have to pay tax if you call it a pool car.
No, it actually has to be one. If you think of it as "your" company car, it probably is not!

You don't have to pay tax if it's only insured for business use.
This will not do, as it is very easy to break that rule.

So what, exactly, is this highly desirable tax free vehicle?

Firstly, genuine pool cars are quite rare, and there is not much point in having one. The car must be available for business use by several people, and no one person can have priority over it, so the users will not be able to avoid either having their own cars or going by bus.

Secondly, it must not be kept anywhere near the homes of those who uses it, so no-one can use it for driving to and from work. It does not actually have to be kept near the workplace if that is impractical, likely to be damaged or stolen, but HMRC have always refused the "I only take it home to keep it safe" line. A pool car which cannot stay on or near the business premises would need to be kept where the driver would have a significant journey home.

Thirdly, no individual from the business can regularly use it for private journeys, however short, and it would be best to have a written rule that it is only for business use except in an emergency or with the permission of the boss.

We therefore have a car which:

cannot be kept overnight near an employee's home
is used by several people for work
no one can use the way most people use their cars.

If this describes your company car, you probably do not have to pay the tax on a car benefit, but you are not getting much of a benefit, are you?

Of course, some employers agree to help their people out by ignoring these rules and saying that a car is a pool car when it does not meet those rules. You may think that HMRC won't know and that nothing much will happen if they find out. Don't be so sure!

Pool cars are an easy and common target during HMRC PAYE Inspections. An employer who has acted in this way will face arrears of PAYE and National Insurance of at least £3,000 per car per year, plus interest and penalties, and such calculations can be taken back as far as HMRC care to go, if the plan has been going on for some time.

This is enough on its own to spell the end for most small companies and, in addition, there is nothing to prevent HMRC from at least mentioning the criminal offence of conspiracy to assist with the evasion of Income Tax.

About the author

This article was written by David Panton, Tax Manager at Wilson Sandford Limited, a firm of Chartered Accountants in Brighton and Hove. David is also a member of the UK200Group Tax Panel. UK200Group is the UK's leading mutual professional association of over 120 quality assured independent accounting and lawyer firms and 50 International Associate member firms around the globe.

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Company cars – a game of pool

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