13 Sep How to Make Carpool Work for you?
Don’t allocate specific cars to particular employees. Some employers like having a carpool. Have a number of cars available to everyone. From a tax perspective, QuickBooks accountants, have analyzed how to make carpool work for you.
There are five conditions that need to be met for a carpool.
- The car is made available to, and actually is used by, more than one employee.
- In each case, it is made available by reason of the employee’s employment.
- The car is not ordinarily used by one employee to the exclusion of the others.
- In each case, any private use by the employee is merely incidental to the employee’s business use of the car.
- Don’t keep the car overnight on or in the vicinity of any of the residential premises. That’s where employees are residing. There’s an exception if kept overnight on-premises.
The tax exemption only applies if all five conditions are met.
When private use is ‘merely incidental’
To meet the definition of a pool car, the car should only be available for genuine business use. Decide whether this test is met, private use is disregarded as long as that private use is ‘merely incidental’ to the employee’s business use of the car.
HMRC regard the test as being a qualitative rather than a quantitative test. It does not refer to the actual private mileage. Rather the private element in the context of the journey as a whole. If an employee makes a long business journey and takes the car home the previous evening. To get an early start, use the journey from work to home as ‘merely incidental’. The car goes home estate the business journey the following day.
Kept overnight at employee’s homes – the 60% test
For a car to meet the definition of a carpool, it must not normally be kept overnight at employees’ homes. HMRC applies a rule of thumb. As long as the total number of nights on which a car is taken home by employees, for whatever reason, is less than 60% of the total number of nights in the period.
When a benefit in kind tax charge arises
HMRC accept that the condition is met. If the car does not meet the definition of a carpool. and is made available for the employee’s private use, a tax charge will arise under the company car tax rules.
Disclaimer: A major chunk of the following article has been taken from HMRC’s main website.
Additional note: ITEPA 2003, s. 167.