Avoiding a company car tax charge

Where your company provides you, your employees or a member of your family with a car, it's quite difficult to avoid a company car tax charge. This is because HM Revenue consider that the car is available for private use and therefore a company car tax charge must apply.

company car tax charge

When your company owns a car (or cars), the two most likely circumstances where a company car tax charge can be avoided are as follows: 

  • Where the vehicle is a pool car
  • Where the terms on which the car are made available prohibit private use and the car is not in fact used privately

What is the definition of a pool car?

In order for a vehicle to qualify as a pool car and avoid the company car tax charge, the following conditions need to be met.

  • The car is used for business purposes and any private use of the car is incidental 
  • Private use should account for no more than 5% of the car's annual mileage on an irregular basis
  • The same car not used exclusively by one or two employees in a tax year
  • The car is not normally taken to an employee’s home at night (see below)

Typically where a pool car is kept at an employee's home overnight this area comes under close scrutiny from HM Revenue. They will not accept that a car needs to be kept at an employee's home in order to avoid vandalism or provide secure parking. However it might be possible to negotiate an agreement with HM Revenue to allow for parking elsewhere for commercial reasons. For example parking elsewhere in a secure location which is less expensive.

HM Revenue may accept  that it is necessary to keep a pool car at an employee's home in the following circumstances.

  • If an employee is a chauffeur and needs to be in a position to collect or deliver passengers or to allow fellow employees to make an early start on a business trip
  • The employee takes the car home after a late finish when no reasonable public transport is available
  • Takes the car home the night before for an early start when no reasonable public transport would be available
  • The car is taken home because the employee live in the direction of an intended business journey from your normal office the following day 
  • circle
    An employee takes a pool car home when “on-call” and a vehicle is required in the performance of the duties of employment for a call-out (see below) 

Again, the question of whether an employee's duties require them to be “on-call”  is closely examined by HM Revenue. The taxman will focus on the employee's duties and whether they are required to give advice in an emergency. Additionally HM Revenue will need to be satisfied that an employees duties start before and are ongoing during a journey to their workplace.

Pool cars  - practical issues

When you are a relatively small business it can be quite difficult to argue for pooled car status with HM Revenue. However the case of Industrial Doors (Scotland) Limited does provide some useful guidelines.  Here it was accepted that in a small environment, in a small office with a few employees, control of the pooled cars could be achieved without formal written rules.  Although best practice should have been to ensure written records were maintained.  However, the nature of the company's work was consistent with journeys from time to time starting at employees’ homes rather than from the company's premises. 

If you do use pool cars in your business we recommend you keep an on-going record of the times when pool cars are available and taken overnight to an employee's home

Company cars where private use prohibited and not in fact used privately

There is no company car tax charge where use of the vehicle is prohibited and/or it is not in fact used privately. So if you wish to avoid the charge you'll ideally require a written company policy in force. You should also wherever possible, try and insure the vehicle(s) exclusively for business use. 

Additionally, consider locking the car keys away outside working hours and ensure that the car is left in your company's locked car park outside working hours.

In order to resist any challenge from HM Revenue, it's vital to be able to demonstrate an express, legally enforceable ban on private use and as a matter of fact that there is no private use.  For practical reasons this might be easier to demonstrate for your employees rather than you personally(!). If you're looking for further guidance, the case of Gilbert v Hemsley provides further reference points.

Ultimately you may decide not to have a company car and it's worth considering the alternatives which are covered in our previous blog.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

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