A pool car is a vehicle that is:
- Made available for more than one employee of a business.
- Mostly kept on business premises.
That’s because a pool car — which can be a car or van — is an asset of the company, not of an individual employee. As such, it is not classed as a company car, an important distinction when it comes to taxes.
- Pool car policy template
- Proving an HMRC pool car is legitimate
- Pool car insurance
- Consequences of improper classification
- Guide: informing HMRC about switching to a pool car
- Insurance checklist
- Pool Car rules
- GPS tracking
The HMRC Definition of a Pool Car
Companies and individuals need to ensure they don’t confuse a pool car with a company car:
- Pool Car: a vehicle shared by employees and regarded as an essential business tool that is subject to less taxation.
- Company Car: a taxable company benefit, given to individual employees for personal and business reasons.
Consequently, some employers incorrectly class vehicles as pool cars when they should be classed as company cars. This is sometimes done to avoid paying more tax and extra National Insurance Contributions. Warning: incorrectly classifying vehicles is subject to severe penalties.
An HMRC pool car is a “vehicle available for work purposes to more than one driver, and not used for any significant private activity.”
Company pool cars must be mostly kept on business premises overnight — and not at an employee’s home. Of course, there may be times when keeping the vehicle at an employee’s home overnight is essential. One possible reason for this might be the driver’s need for an early start the next day. As long as such instances are rare and driven by necessity HMRC won’t class the vehicle as a “company car.”
To ensure these guidelines are followed, make sure you write a comprehensive pool car policy for employees – feel free to use our template below:
Proving an HMRC Pool Car is Legitimate
If HMRC suspects a declared pool car is being used as a company car they may investigate.
Companies should take the following steps to ensure they can prove a vehicle is a legitimate pool car:
- Keep records of who used the vehicle: This information can be stored in a fleet software system.
- Keep records of the vehicle’s routes: Have proof the vehicle is used only for essential business purposes. Some fleet software can record and store this information automatically.
- Keep accurate records of where the car is kept overnight: A GPS tracker provides this evidence.
- Ensure the car is insured and taxed for business use.
- Store records of maintenance and servicing: Keep these files available for inspection.
Consequences of Improper Car Classification
There are serious consequences for companies and employees who wrongly describe a fleet car as a pool car. If the vehicle in question is found to be a company car in all but name, HMRC may view this as tax evasion.
There’s a potential fine of up to £3,000 per year, per employee. There may also be further penalties for late payment of the relevant tax and National Insurance (NI).
Tax owed on a company car can be backdated for four years, and NI can be backdated for six years. HMRC may also seek interest on the missing payments.
Switching from a Company Car to a Company Pool Car
Switching out company cars for company pool cars and moving to a corporate car-sharing model could generate savings of up to £8,700.
If you do convert a company car into a pool car, you must inform the HMRC both when you start or stop providing company cars to your employees. When you switch your company cars to carpooling, you may send a P45 form indicating that you are stopping the use of company cars.
Benefits of Switching to a Company Pool Car
Here are some of the reasons where it is advantageous for a business to switch to an HMRC pool car:
1. No BIK tax
With a company car, the employee has a Benefit in Kind payment to pay. However, because the authority doesn’t consider carpooling as one of the perks of employment, employees aren’t liable for BIK payments when driving pool cars. It also means that the business does not have to pay their employees national insurance contributions.
Besides the tax benefits, it is also cheaper to purchase or lease one car for several employees than to acquire separate vehicles for all your employees. Fuel and maintenance costs will also be lower since the cars and fuel will not be used for personal use. Your firm requires servicing of a relatively smaller number of cars. An organisation can redirect the saved expenses from having such cars to other parts of its operations.
3. Better for the environment
Using carpooling has a positive environmental impact since less fuel is required to run a few cars that service many employees, as opposed to many company cars that services a single employee. Cutting these emissions down will help you work towards a greener fleet.
4. Available for every employee
Unlike a company car, which is limited to serving selected employees, carpooling is available to everyone. It can ensure better punctuality for all your employees. Also, it encourages employee bonding, which could translate to smoother collaboration and more productivity.
5. Remote work has reduced the need for company cars
The COVID pandemic forced many companies to restructure and shift to remote working environments where most people work from home. The mileage and use of company cars’ have consequently reduced significantly. As working environments continue to evolve and shift following the pandemic, switching to carpooling could make financial and practical sense.
All that being said, whether you have pool or company cars, every modern company should always digitally track their business vehicles. Find out how with the Fleet Tracking Brochure below:
A Guide to Pool Car Insurance
Pool car insurance is an enhanced coverage for fleet vehicles that accounts for a wide range of potential costs. Unlike standard, personal car coverage, pool car insurance provides coverage for all passengers — ideal if your cars carry colleagues, customers and clients.
Crucially, this type of insurance offers protection on journeys made as part of an employee’s duties. For example, a sales representative driving a company car to a meeting wouldn’t be covered with a standard policy; they’d need coverage that covers business use as well.
Pool car insurance can cover an entire workforce, meaning the covered vehicle can be transferred from employee to employee without the need for separate policies.
Here are 3 questions to ask yourself when choosing insurance:
1. Is the car registered under a person’s name or a company’s name?
If a pool car is registered to an individual trading as a business, the chances are sole-trader-coverage is required. This is ideal for self-employed freelancers who use their own name to trade. If, however, the vehicle is registered to a company, company coverage is required.
It is vital that the correct coverage is bought for a pool car otherwise a future claim may be rejected by the insurer.
2. More than one pool car?
If you or your company owns or leases more than one pool car, opt for fleet insurance. This kind of policy is designed specifically for multiple vehicles within the same organisation. The cars covered by the policy can be registered to an individual, a group of individuals or a company.
Fleet insurance is a type of pool car insurance designed for trading entities that rely on company-owned vehicles to carry out essential business activities. This type of coverage ensures you or your company avoids the potential problem of accidentally leaving a vehicle uninsured.
3. Why do you need pool car insurance?
Pool car insurance protects a business or sole trader from a range of unexpected costs. Whether the vehicle is stolen or suffers a chipped windscreen, the cost of repair is covered. This sort of certainty is essential when managing and reducing costs.
A range of additional benefits are also available applicable to specific business needs. For example, if your business operations take your employees out of the country, ‘foreign use cover’ is essential.
Most pool insurance policies include legal support when it’s needed. In most cases, there’s also a replacement vehicle available in the event of theft or damage. Tip: To keep future costs to a minimum, look for insurance that protects your business’s no-claims discount.
Fleet Software to Keep Accurate Records
The consequences of wrongly declaring a company vehicle as a pool car can be severe. Unfortunately, it’s not enough to tell HMRC that your pool cars are used in accordance with tax regulations — you have to prove it.
Fleet software and GPS Fleet tracking is invaluable in this regard. While many companies choose to track company vehicles, this kind of surveillance isn’t necessary. Pool vehicles, however, can only be used for essential business journeys. Fleet software stores information on routes, parking locations and a range of different driving metrics. All of this information is available in the form of reports, providing irrefutable evidence that satisfies HMRC’s taxation criteria.
The potential cost of confusing company cars with pool vehicles is enormous. But, by tracking pool cars with fleet software, companies can ensure they comply with HMRC’s stringent tax regulations at all times.
Company Pool Car Rules
Fatigue is a leading cause of road accidents, and it is mostly due to driving long hours without rest. You can avoid catastrophic accidents by enforcing pool car rules to ensure drivers take breaks as at when due. Doing this not only protects your employees and company vehicles, it ensures your business continues to run smoothly.
When drivers rest well, they are more focused and alert, which makes them productive. Conversely, overworked drivers are more likely to make mistakes, sometimes costly ones that will disrupt your company’s operations and affect your bottom line. Having a robust set of pool car rules can ensure drivers don’t cheat during driving hours.
When drivers work long hours without breaks, it is easy to get tired and lose focus, which is extremely dangerous for the driver and other road users. Make sure your pool car rules highlight when drivers must take a break. Provide tachographs for accurate tracking of driving hours and reprimand employees that don’t follow your pool car rules.
Driving Hour Offenses and Fines
If your rules are outdated, your driver may be fined thousands of pounds for any of these driving hours and tachograph offences:
- Breaking rest period rules and failure to monitor driving time (fine up to £2,500)
- Failing the keep records according to UK domestic driver hours rules (fine up to £2,500)
- Not having a tachograph (fine up to £5000)
- Not using a tachograph (fine up to £5000)
- Failing to provide driving records to an enforcement officer (fine up to £5000)
Your company pool car rules need to outline these offences and their fines so that drivers can avoid them.
Punishments for Breaking Company Pool Car Rules
Your company pool car rules should contain sanctions the Driver and Vehicle Standards Agency (DVSA) imposes on drivers who break driving hours and tachograph rules, including:
- Verbal warnings: For minor offences, the enforcement officer may issue only a verbal warning and a clarification of the rules to prevent future infringement. Your company pool car rules should clearly state these infringements and their penalties so drivers can avoid being reprimanded.
- Offence rectification notice: A driver may get an offence rectification notice that must be acted upon within 21 days to avoid further punitive action. Update your pool car rules to reflect these sanctions.
- Prohibition: If your driver continues to infringe on driver hours rules, law enforcement may prohibit them from driving to safeguard other road users.
- Prosecution: For serious offences, your company and the erring driver may face prosecution.
- Report to the traffic commissioner: Sometimes, an infringing driver may be reported to the traffic commissioner who will decide whether to prosecute or only take administrative action.
Again, it is important for your company to have detailed rules that show drivers how to use a tachometer, take rests, and avoid traffic offences.
Carpooling is restricted to work-related trips only. Using a GPS car tracking system can ensure you have genuine, accurate vehicle usage reports to prove that your pool cars stay within HMRC’s taxation rules.