As every business owner and most employees, find themselves working from home more than ever before it is important the that the tax implications of this new way of working are understood.
Does Santa have a pool car or will he pay tax on the company sleight benefit?
Ever wondered if Santa’s sleigh is a pool car and any of the Elves can take it for a spin too… or is it a North Pole company car benefit?
With all the free gifts he’s giving away I’m sure he’ll want to be as tax efficient as he can! So.. which would be best for him? Here’s the low down on the two options:
A company car can be a great perk but is also a taxable benefit in kind. They are not as common as in the past generally due to tax implications, so it’s worth weighing up if it’s really worth while.
The taxable benefit of the car will be added to your salary and then tax will be taken off the total. This could raise your rate of tax: you pay 20% tax at basic rate and 40% if in the higher tax rate bracket.
Factors like the car list price, whether the company also pays for fuel, CO2 emissions and make and model of the car effect the amount of tax you pay. So is a company car more of a pain than a perk?
Often the answer is yes. Although typically the less polluting the engine then the lower the tax bill, and electric vehicles are starting to look a little more mainstream now.
As it’s a benefit in kind you’ll also need to arrange a P11D form to detail the benefit in kind to HMRC. Read more about that here.
But with a pool car, there’s no taxable benefit ,so why can’t we treat every company vehicle as a pool car?
There’s a simple answer, there are tight restrictions you need to prove that you meet to show the car is a genuine pool car: not a taxable company vehicle.
Here are the conditions:
- The car is made available to and used by more than one employee.
- The car is made available to each employee as a result of being an employee.
- The car is not ordinarily used by one of the employees to the exclusion of the others.
- If an employee does use the care for private use it’s a one off that could have resulted from a business use for example taking the car home in the evening to leave early for a business trip in the morning. Out with a one-off situation like that, you’d risk the pool car status.
- The car is not normally kept overnight on or in the vicinity of any of the employee’s homes (unless it is kept on the premises occupied by the person making the car available to the employees). The tax-man regards the `not normally’ test as being met if the car is taken home by employees on less than 60% of the nights in the review period. Keep in mind that the reason the car’s taken home isn’t considered, just the frequency.
All or nothing
For the car to be a pool car, you need to meet all 5 of the above conditions. If not, the car fails the pool car test and every employee who had private use of the car will be taxed on their private use. That could be costly especially if it’s an expensive model with high CO2 emissions.
You need to detail the use and maintain the pool car:
- Keep an accurate record of the use: a sign out key, and sign back in is a minimum.
- It must be taxed and insured for business use.
- It needs a regular inspected for condition (tyres, oil etc) and meet duty of care standards (keeping those using it safe).
What’s best for Santa?
Given he’ll just use the sleigh once a year (never for private use), he lives on the company premises where the sleigh is kept, and the Elves use it too – he’d be best off with the pool car option and won’t pay any tax.
Weigh up what’s best for you and your team. If you need advice ask one of the Blu Sky team.