Meeting the pool car conditions
Thursday, August 12th, 2010
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A small Scottish company, whose employees had to travel extensively around Scotland, had, for many years, made a number of cars, including two prestige cars, available to all of the employees for business use. HMRC, following a compliance audit, decided that the cars did not meet the statutory conditions for categorising company cars as pool cars and assessed the company for over £17,000 in unpaid Class 1A NICs. HMRC’s principal argument was that the company had failed to keep sufficient records to demonstrate that the statutory conditions had been met.
The First Tier Tax Tribunal, in a decision given on 17 June 2010 in the case Industrial Doors (Scotland) Ltd v Revenue & Customs, allowed the company’s appeal against the assessment on the basis that, as there are no evidential requirements specified in the tax legislation, Industrial Doors had demonstrated adequately that its internal rules on the use of pools had been met by the company and its employees.
The conditions that must be met for a car provided for the use of employees to be treated as a pool car in a particular tax year are set out in section 167 of the Income Tax (Earnings and Pensions) Act 2003. A full description of the conditions and how they apply are available in one of our Employer FAQs. This article states:
“It would be sensible to keep detailed mileage logs for pool cars, showing separately the business journeys and the “incidental” journeys, and also to record the employee’s manager’s authorisation for the use of the car.”
This guidance is only a suggestion. The legislation itself makes no reference to the nature of any evidence to be kept by employers to demonstrate compliance, but clearly employers need to be able to demonstrate, to a reasonable extent, that the conditions have been met. HMRC’s own Employment Income Manual no longer makes any reference to records in this context. However, the Tribunal’s decision confirms the need to keep records, stating:
“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 and to avoid doubt those records should be maintained.”
HMRC was over-demanding in this particular case, but the case does demonstrate that HMRC is interested in pool car arrangements and that employers must keep appropriate records that are capable of demonstrating compliance.
Further information:
Industrial Doors (Scotland) Ltd v Revenue & Customs
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