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, which is important for tax reasons.
The HMRC definition of ‘what is a pool car’
Companies and individuals need to ensure they don’t confuse a pool car with a company car. A company car is a taxable company benefit, given to individual employees for personal and business reasons. A pool car is shared by employees and is regarded as an essential business tool that is subject to less taxation. As a result, some employers class vehicles as pool cars, when they should be classed as company cars, to avoid paying more tax and extra National Insurance Contributions – many have faced 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.”
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:
Download: Pool Car Policy Template
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 fleet software systems.
- Keep records of the vehicle’s routes — proving it’s used only for essential business purposes. Some fleet software can do this digitally.
- Keep accurate records of where the car is kept overnight. A GPS fleet tracker provides this evidence.
- Ensure the car is insured and taxed for business use.
- File records of maintenance and servicing available for inspection.
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 Pool Car
Switching out company cars for 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. Hence, when you switch your company cars to carpooling, you may send a P46 form indicating that you are stopping the use of company cars.
Benefits of Switching to a Pool Car
Here are some of the reasons where it is advantageous for a business to switch to an HMRC pool car:
Download our Guide: Informing HMRC about Switching to a Pool Car
1. No BIK
With a company car, the employee has a tax burden or Benefit in Kind payment. However, because the authority doesn’t consider carpooling as one of the perks of employment, employees aren’t liable for BIK payments. It also means that the organisation does not have to pay their employees national insurance contributions.
Besides the tax benefits, it is also cheaper to purchase or lease one pool 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 pool 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. In this case, switching to carpooling makes financial sense as your employees don’t need company cars at this time.
Want advice on how to better manage your fleet? Our fleet experts can give you a free consultation!
What is a Pool Car with GPS tracking?
Carpooling is restricted for use on work-related trips only by the employees. Using a GPS car tracking system like Fleet Geo can ensure you have genuine, accurate vehicle usage reports to prove that your pool cars stay within HMRC’s taxation rules. Contact us today to learn more about Fleet Geo by Vimcar.
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 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.
Pool car rules: what should your company policy be?
Tired driving is a major cause of road accidents in the UK, and government agencies are cracking down on drivers. As a fleet manager, it is important to set pool car rules that ensure your drivers adhere strictly to driving hours limits. Here are some benefits of taking driving breaks for drivers and the fleet:
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.
Pool Car Rules that Prevent accidents
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.
Driving hours offenses and their fines
If your pool car 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 pool car rules need to outline these offences and their fines so that drivers can avoid them.
Punishments for Breaking Pool Car Rules
Your 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 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 pool car rules that show drivers how to use a tachometer, take rests, and avoid traffic offences.
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