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Our close company client is an estate agent trading in a locality where parking is strictly controlled by means of residential parking permits and 'red routes'.
The company owns three cars which are each driven by its employees who are the 'negotiators' generating the company's turnover and who also live within one or two miles of the company's trading premises.
Our close company client is an estate agent trading in a locality where parking is strictly controlled by means of residential parking permits and 'red routes'.
The company owns three cars which are each driven by its employees who are the 'negotiators' generating the company's turnover and who also live within one or two miles of the company's trading premises.
Section 159(2)(c), Taxes Act 1988 states that the pooled cars must not normally be kept overnight in the vicinity of any of the employees' residences, although 'vicinity' is not defined. The pool cars are driven home each evening, which breaches the 60 per cent rule of thumb test in the Revenue's Schedule E Manual at paragraph SE23803.
The three 'local' employees live within the parking permit areas in which our client trades (is this the 'vicinity'?). All cars are owned and insured in the company's name. The company's two directors, who drive two of the cars, each own private cars in their own names. The company does not have garaging facilities – there are none in the area. However, paragraph SE23813 of the manual states that no claim or concession should be offered on this basis.
The cars are relinquished each weekend by the 'local' employees for use by casual drivers who take potential purchasers to viewings, following which the cars are parked where spaces are available within the parking permit areas.
In 1996, following a regular pay-as-you-earn visit, the Inspector requested that a form P46(Car) should be completed for one of the 'local' employees. When submitting that form to the Revenue we suggested that no private car or fuel benefit arose as the employee lived close to work, but we received no response and there has been no subsequent pay-as-you-earn inspection or enquiry. Is pool car status denied in respect of the three 'local' employees?
(Query T15,861) – Offers invited.
Pool cars are defined at section 159, Taxes Act 1988. The writer identifies one part of the definition (section 159(2)(c)) as a potential problem – that a pool car must 'not normally be kept overnight on or in the vicinity of any residential premises where any of the employees was residing…'. This certainly is a problem if the employees take the cars home each evening. If the cars were left outside the office, the Revenue would surely not argue that 'being in the same controlled zone as the house' breached this condition.
However, it is likely that section 159(2)(b) will be at least as great an obstacle: 'any private use of the car … was merely incidental to his other use of it…'. If the employees 'go home' in the car, that is private use. It would be necessary to show that this private use was incidental to business use. Incidental in this sense means being part of a larger business purpose, rather than relatively small in amount. It is generally accepted that taking a pool car home for the night because a long business journey will be undertaken the next day, starting early, satisfies the condition of being 'incidental'. Taking the car home every evening is harder to justify.
There are some arguments that have been tried, and which have occasionally worked. It might be argued that the cars are at greater risk if parked outside the employer's premises, so there is a business purpose in the homeward journey of providing security for the company's assets. This is likely to be resisted by the Revenue, particularly if the cars are simply parked in the street by the employees.
The case of Gilbert v Hemsley [1981] STC 703 was not about pool cars, but similar issues arose. The employee was constantly on call from home, and this was why he needed to have his 'business use car' available there. 'Making it available at short notice for business journeys' became the business purpose of taking the car home, to which the private journey home was incidental. But the circumstances of the estate agents do not seem to be comparable; if they live that close to their employer's premises, and usually have scheduled appointments to fulfil rather than being called out at short notice, it is hardly essential to have the car near their home for this reason.
Unless a convincing business purpose can be found for the journey home, there must be a taxable benefit. If there is a purpose such that the journey counts as 'business with incidental private motive', it will be better to use the Gilbert v Hemsley argument ('not made available for private use') rather than section 159.
The car is surely not a pool car because it is regularly kept overnight near where the employees live. If the car is insured only for business use, and the employees are contractually required not to make private use of it, there is some chance of success.
But it is well known that the Revenue will fight very hard on this issue, and it will take a great deal of determination and a very good argument to win! – Castlegate.
The solution to this problem lies in a question of fact – are the employees driving the cars home in the evening (i.e. home to work private mileage), or are they removing them to the nearest available overnight parking facility on behalf of their employer? If the former, then they are using the cars privately, and they should be taxed accordingly. If the latter then 'Offers Invited' does not need to be concerned with the remaining pool car criteria. In this situation, if the employer places a specific prohibition on the private use of the cars, and no private use is actually made, by virtue of section 157(6)(a), Taxes Act 1988, there will be no charge to tax. – Accountax Consulting.
Extract from reply by 'Man of Kent':
Fact takes precedence over interpretation, not the other way round, and the facts are that the company cars are used as a pool, that none of them is allocated exclusively to one person, and that nobody has been granted a right to the private use of any of them. The basis of the firm's defence is, therefore, that this is a car pool plain and simple.
It is suggested that each driver's written conditions of employment includes a clause, suitably tailored to actual circumstances, based on the following model:
'The duties of each work day start, and work time reckonable for wages starts accruing, on your arrival at the place where any company car in your care is parked. The duties of each workday end when, and work time reckonable for wages accrues until, any company car in your charge has been made secure for the night. No private use of company cars is allowed.'
A journey home cannot begin until the day's work is over, and a journey to work can extend no further than the place where work starts. Accordingly, the above conditions make clear that the firm's cars are used only while the driver is still actually at work under the terms of his contract. When the amended statement of conditions is handed to the driver, it may be felt practical to explain verbally that any stringencies in the wording are to shield him from vexatious assessment.
