The income tax legislation regarding pool cars (ITEPA 2003, s 167(3)) sets out the conditions for a car to be a pool car.
These include the following:
- The car was made available to, and actually used by, more than one employee.
- The car was not ordinarily used by one of those employees to the exclusion of the others.
- In the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year.
- The car was not normally kept overnight on, or in the vicinity of, any residential premises where any of the employees were residing, except while being kept overnight on premises occupied by the person making the car available to them.
If all the conditions are met, no benefit is chargeable on those who have had use of the car.
Statement of Practice 2/96
This guidance outlines how HMRC interprets ‘merely incidental’ in the above legislation.
If the private use is in some way a result of the business use, it can be considered merely incidental. Private use being small in comparison to the business use is not, on its own, sufficient to meet the test.
For example, if an employee takes a car home to make an early start on a business journey the following morning (where that business journey could not reasonably be undertaken the next day starting from the normal place of work), the journey from work to home, although private, is merely incidental to the business use. This would also be the case if an employee who is staying away from home overnight on a business trip uses the car to go to a nearby restaurant in the evening.
MWL International Ltd and Maywal Ltd
In MWL International Ltd and Maywal Ltd v Revenue and Custom [2024] UKFTT 402 (TC), Mr Walpole [W] was a director of both appellant companies. At a 1993 meeting, the HMRC inspector made a representation to W as to what was required for a car to be a qualifying pool car. Among the conditions mentioned was apparently that: “…each employee who had use of the car owned another car which was available for private use.”
This representation was relied upon by the taxpayers, but (many years later) HMRC sought to collect Class 1A National Insurance contributions, having concluded that certain cars leased by the companies were not pool cars.
The taxpayers appealed, but the First-tier Tribunal (FTT) held that the cars were pool cars, as W and his family members clearly used them for private purposes that were not merely incidental to business travel.
Estoppel and Legitimate Expectation
The appellants advanced two further arguments, namely that:
- HMRC was estopped from arguing that the cars were not pool cars during the relevant period; and
- The companies had a legitimate expectation that the cars would be treated as pool cars.
Neither argument succeeded. HMRC was not estopped from retrospectively changing the agreement made at the meeting because both:
- HMRC could not be estopped from enforcing a statutory provision; and
- The HMRC inspector had no authority to enter into a forward agreement relating to the companies’ tax position.
The latter made the agreement void; a void agreement cannot be the basis of an estoppel.
Finally, the FTT decided it did not have the jurisdiction to decide the issue of legitimate expectation, which would require a judicial review hearing.
Practical Tip
As there is no private use, VAT is (in principle) recoverable on a pool car. However, for capital allowances purposes, pool cars are governed by the normal rules for cars, meaning that they do not qualify for annual investment allowance (AIA) or full expensing.
