It’s a Pool Car isn’t it? Reply

Black Elegant Vintage Car

Yet again, we have another case on Pool Cars which could have been prevented had the right procedures been put in place.

The Case was decided in May 2015 and involved Mark and Trudie Holmes and their company KMS Logistics (UK) Ltd. The company owned 7 prestige cars which were used assist in maintaining and attracting clients.

There was no prohibition (not even a verbal one) on the private use of the vehicles, mileage logs showed that the cars were mainly used by Mr & Mrs Holmes. Until 2003/4 they had been declared as a benefit in kind but then the stopped being declared! There even seemed to be confusion over who owned the cars.

So not surprising Mr & Mrs Holmes lost the case.

Read the full details by clicking here

So what should you do to prove there is no private use:

  1. Keep the car on the company’s business premises
  2. Keep the keys at the company’s business premises
  3. Prepare a Board Minute
  4. Make sure your contract of employment bans private use
  5. Keep a mileage log
  6. Insure the car principally for business use

HMRC have specific rules on keeping vehicles at home in EIM23465

Even if you do meet the 60% rule you still have to prove ‘no private use’

steve@bicknells.net

 

 

Pool Cars – Do you have a ‘no private use’ Policy? Reply

Pool Cars

The latest case Vinyl Design Ltd v HMRC [2014] TC 03345 highlights why policies and mileage records are important.

Here are the facts of the case:

  • The company’s only 2 employees were the directors
  • They had different cars for private use
  • They argued the Pool car was only for Business Use
  • They had no policy
  • They had no Mileage Records
  • Pool Cars kept at home due to risk of vandelism

Not surprisingly HMRC won the case !!

So what should you do to prove there is no private use:

  1. Keep the car on the company’s business premises
  2. Keep the keys at the company’s business premises
  3. Prepare a Board Minute
  4. Make sure your contract of employment bans private use
  5. Keep a mileage log
  6. Insure the car principally for business use

HMRC have specific rules on keeping vehicles at home in EIM23465

Even if you do meet the 60% rule you still have to prove ‘no private use’

steve@bicknells.net

How do you prove ‘No Private Use’ of a company car? 4

Black Elegant Vintage Car

I spotted this case on the HMRC website the other day…

Elm Milk Ltd 2006 STC 792

A business bought a car for its managing director. It recorded a resolution that the car was for business use only. The managing director had another car that was used for private journeys.

The Court held that there was no reason why a car could not be made unavailable for private use by suitable contractual restraints, and that a company could enter into a binding employment contract with its sole director. Therefore, on the facts of the case, the car was available for business use only and input tax could be reclaimed.

The court held that HMRC had given too much weight to the physical constraints and insurance and should have focused on contractual constraints, the employment contract and board minutes.

The following case is also very interesting…

The ‘Shaw’ case

In the Shaw case the taxpayer bought two BMW X5 vehicles together, one for use in his farm business, the other for use privately. Mr Shaw also owned two other cars privately as well. HMRC [again] argued the case based on the social and domestic cover on the insurance policy, but Mr Shaw rebutted this by showing how the insurance policy for his combine harvester had ‘social, domestic and pleasure’ cover too! He added that the premiums for both the X5s and the harvester were lower as a result.

If there is No Private Use then there is no benefit in kind and no fuel scale charges.

So what should you do to prove there is no private use:

  1. Keep the car on the company’s business premises
  2. Keep the keys at the company’s business premises
  3. Prepare a Board Minute
  4. Makesure your contract of employment bans private use
  5. Keep a mileage log
  6. Insure the car principally for business use

Unlike Pool Cars you don’t have to prove it was available to other employees

steve@bicknells.net

What is a Pool Car? can you reclaim VAT? will it be tax free to drive? Reply

Pool Cars

Pool cars must meet the following conditions:

  • used by more than one employee
  • not ordinarily used by one employee to the exclusion of others
  • not normally kept at or near employees’ homes
  • used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)

Provided all these conditions are met, you have:

  • no reporting requirements
  • no tax or NICs to pay

http://www.hmrc.gov.uk/paye/exb/a-z/c/cars.htm#4

To back this up it would be worth having:

  1. A written ‘no private use policy’
  2. Business Only insurance
  3. A mileage log to show that there’s no private mileage

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:

  • exclusively for a business purpose
  • a taxi, for driving instruction or self-drive hire

http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm

The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:

Masterguard Security Services Ltd VTD 18631

A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.

Peter Jackson Jewellers Ltd VTD 19474

A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.

http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm

What counts as private use?

Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:

  • small in extent and infrequent and
  • consists of either or both of:
    • use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
    • use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.

Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.

Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.

Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)

http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm

Type of Car

You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).

So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.

Change of Use

If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.

VAT Act 1994 Section 56 (9) – Fuel rules

(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.

steve@bicknells.net