Private use of a pool car - what’s the tax position?

What’s a pool car?

Employers probably think of a pool car as one that’s shared by two or more employees. HMRC’s view is that a pool car is one that doesn’t provide an employee with a personal benefit. There’s a fine line between what does and doesn’t count as private benefit; the mere availability of a car for private use can result in a tax bill for an employee or director. To avoid this the tough conditions imposed by HMRC must followed closely.

Conditions

Company car drivers can only avoid being taxed on a pooled car where the vehicle is not available for private journeys and all the following conditions are met. The car:

• must be available to use by more than one employee
• must not usually be driven by one employee to the exclusion of any other
• is not used for private journeys unless they are incidental to the business use
• is not normally kept overnight at or near to a director’s or employee’s home.

Occasional private use

Some personal benefit from a pool car is allowed without resulting in a tax charge where:

• a director or employee takes it home overnight solely so they can get an early start for a business journey the next day
• the use is incidental to the business travel. For example, the employee may visit a customer and, without driving the car further, take the opportunity to do some shopping in the local area.

Incidental use should not be confused with minimal personal use. The latter will trigger a tax charge, although in practice HMRC, if aware, may ignore occasional very minor private use where it occurs in conjunction with a business journey.

A log showing the mileage and purpose of each journey in the car should be kept by the drivers. Employers should ensure that someone is responsible for checking that the log tallies with the car’s odometer.

Not always a pool car

There might be a good reason why an employee or director needs to use the car for a single private journey or for a period. For example, if their personal car is off the road. This only changes the tax status of a pool car to a limited extent. It doesn’t mean that the user will be hit with a full year’s tax charge just because they made personal use of the car for a few days.

Tax consequences of private use

If there’s private use of a pool car, the employer should work out the taxable amount as if the driver had exclusive use of the car for the year and reduce it on a just and reasonable basis. 

Example. Shaun uses the pool car for five personal journeys totalling 900 miles in a tax year in which it’s driven a total of 18,000 miles. If the taxable amount for a whole year’s private use of the car is, say, £6,000, it would be fair and reasonable that Shaun is taxed on £300 (900/18,000 x £6,000)