The recent case of Yum Yum Limited v HMRC [2010] UKFTT 331 (TC) confirms that where a car is made available to an employee, for example in a car pool scheme, it is exempt as a taxable employment benefit provided the car is kept overnight at a premises "occupied" by the employer. It follows that it would constitute a taxable employment benefit if the car is stored overnight at an employee's home.
This was the first time a first-tier tribunal ("Tribunal") considered the meaning of premises being "occupied" for the purposes of the pool car exemption in section 167 of the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003").
Chapter 6, Part 3, of ITEPA 2003 prescribes that where a car is made available to an employee, this can constitute a taxable employment benefit. The car pool exemption may apply where the car is not being made available for private use, which is dependant on where the car is kept overnight. It can only apply if the car is not kept overnight at any residential premises where any of the employees reside, unless the premises are "occupied" by the employer.
The Tribunal found that there was no definition of the term "occupation" under ITEPA 2003. The Tribunal held that a person "occupies" a premises when 'he physically possesses them, controls them, has power to exclude others (by trespass action) from the benefit he enjoys in them and has some form of right to some enjoyment of them'.
In this case, the employer could not show that it, rather than its director who used the car, occupied the director's home, where the car was parked. Therefore, the pool car exemption could not apply.
Best practice
This case highlights that when a car is made available to an employee under a car pool scheme, the possible tax exemption will only apply in very limited circumstances, i.e. the employer must occupy the premises where the car is parked overnight.
For employers who operate a car pool scheme, they should be aware that if they allow their employees to take the vehicle home overnight it will be treated as a taxable employment benefit. Employers should review their current arrangements and make any adjustments to their car pool scheme policy accordingly.
For further information and advice concerning taxable employment benefits, please contact Victoria McMeel on 0117 314 5467.
This publication is for guidance only. Reliance should not be placed upon it and nor should action be taken, without obtaining advice in respect of the specific circumstances applicable. We will be pleased to provide such advice or assistance.
