Can you claim input tax on a new pool car?

What’s a pool car?

Most of your business vehicles will be allocated to a specific employee, e.g. you pay your sales manager a competitive salary plus a company car. Any car that is allocated to an employee cannot be classed as a pool car. The distinction is important because the VAT treatment of pool cars differs from regular company cars, both for direct tax, and VAT purposes.

There are three conditions for a genuine pool car, and these must all be met. The car:

• must normally be kept at your principal place of business, e.g. your warehouse, factory or head office
• is not kept at the home of any employees; and
• is available for general use by your staff and there is no restriction to, say, use by directors or managers only.

Claiming input tax

You can claim input tax when you buy a new pool car but it should also meet the other input tax conditions for cars, i.e. it is only used for your business trips and not intended to be made available for private purposes.

Tip. It would be sensible to keep a mileage log to show the trips made in the car and the name of your employee carrying out each journey.

HMRC approach

One of our clients asked if HMRC would accept that a BMW could qualify as a pool car. Our opinion is that an officer would almost certainly challenge this decision if they reviewed the VAT returns of the business. There is no restriction in the legislation about which vehicles qualify as pool cars - or otherwise - but it would be expected that your car would be a run-around vehicle rather than a prestige model such as a BMW or Mercedes.

Ask yourself the question: would a business allow a prestige car to be used for, say, transporting stock and equipment to the premises of a customer?

What about a leased pool car?

If you lease a vehicle, rather than buy it outright, you will be charged VAT on each payment made to the leasing company, usually on a monthly basis. The legislation allows you to claim 50% input tax in such cases, irrespective of the percentage of business and private use. However, you can claim 100% input tax on the cost of leasing a pool car.

If you receive an annual tax invoice from the leasing company - which is the usual practice - make sure that you claim input tax according to each monthly payment made throughout the year (the tax point) and not as a single claim when you receive the invoice.

Penalties for careless behaviour

In a recent tribunal case, HMRC decided that a business should have known that it could not claim input tax on the purchase of two cars. HMRC disallowed the claim by issuing an assessment but also charged a penalty for careless behaviour. If you claim input tax on the purchase of a pool car, you must be certain that it meets all the necessary conditions and they are applied consistently by all your employees.

For a careless behaviour penalty, you can ask the officer to suspend it if you agree to make certain improvements to your accounting systems.