Growth in pool fleets and car-sharing services could leave employers at risk of falling foul of tax rules if they allow private use of these vehicles.
HM Revenue and Customs (HMRC) says benefit-in-kind (BIK) should be paid on any company car or van if it fails to satisfy five conditions.
No private use is key, but equally the vehicle must be used by more than one employee, not to the exclusion of others, and must be made available to employees through the course of their work. The vehicle cannot also be kept near the employee’s home at night.
An HMRC internal manual states: “You will sometimes see it argued that a car or van that would otherwise qualify as a pooled car or van is only taken home at night by an employee because there are inadequate car parking facilities at the employer’s premises, or if the car or van were left overnight at the employer’s premises it might well be damaged by vandals.
“Apart from the exception for chauffeurs, do not admit such a claim or offer any concession.”
HMRC told Fleet News regular checks and accurate records of both driver and journey were essential to help fleets avoid falling foul of the rules.
“Employers should keep records such as mileage records, including origin and destination , in order to show that the journey was a business journey,” said an HMRC spokesman.
If employers are not clear about the records they should keep, they should contact their HMRC customer relationship manager (if they have one), HMRC directly or a tax advisor.
The spokesman added: “No private use of the vehicle is allowed by employees. Any private use has to be incidental, in the context of the business journey as a whole.”
An example might be where an employee is required to make a long business journey.
“In order for the employee to be able to make an early morning start, he or she is allowed to take a pooled car home the previous evening,” the spokesman explained.
“If this is considered in isolation, the office to home journey is private use, but in these circumstances it is plainly incidental to the business journey undertaken the next day.”
Get it wrong and HMRC can levy a fine of up to £3,000 per annum, per employee, for an incorrect tax return.
Inspectors can also determine whether the inaccuracy was careless, deliberate but not concealed, or deliberate and concealed, and will link a penalty for each offence as a percentage of ‘potential lost revenue’ – up to 30%; from 20% to 70%; and from 30% to 100% respectively.
That could involve unpaid tax going back four years, unpaid national insurance going back six years and lost interest on those sums, as well as a late payment penalty.
Alastair Kendrick, tax director at MacIntyre Hudson, said: “In some of these schemes employees are permitted to use the vehicles privately by making a hire charge.
“This does not remove the BIK but, if the arrangements are properly structured, that hire charge can be considered a private use contribution which is set against it on the car.”
With research suggesting car-sharing could quadruple in the next four years, Kendrick believes consideration should also be given by the Government to whether existing tax rules are flexible enough to allow these schemes to work.
“The rules could be made more relevant to enable those wanting to move into this type of scheme to do so without the risk,” he said.
Alphabet, which launched its car sharing service Alpha City in 2012, told Fleet News it hadn’t seen any examples of fleets abusing pool car rules.
“It’s not an issue as far as our customers are concerned, but our advice to fleets is keep a tight rein on pool cars and make sure you know the rules,” said Jon Burdekin, head of product management at Alphabet.
Alphabet also believes the existing tax regime is able to cater for the predicted growth in pool car fleets and car sharing schemes.