Policy paper

Statement of Practice 2 (1996)

Published 29 March 1996

Introduction

1. This statement explains the Commissioners for HM Revenue and Customs (HMRC) approach to the question whether any private use by an employee of a car made available by his or her employer is ‘merely incidental to’ his or her business use of the car. The same approach is taken to vans.

Legislation

2. No tax charge arises on a car made available by reason of an employment (a ‘company car’) if it is a ‘pooled car’. Income Tax (Earnings and Pensions) Act (ITEPA) 2003 s 167(3) (formerly Taxes Act 1988 s 159(2)) sets out the conditions which must all be satisfied for a car to qualify as a pooled car. ITEPA 2003 s 169 (formerly Taxes Act 1988 s 159 as applied by s 159AB) applies the same conditions for pooled vans.

3. The fourth of the 5 conditions is that any private use of the car or van by any employee to whom it is available is merely incidental to his or her other (ie, business) use of the car or van in the tax year in question (ITEPA 2003 ss 167(3)(d), 168(3)(d) (both formerly Taxes Act 1988 s 159(2)(b)).

Board’s interpretation

4. The Commissioners for HMRC have been advised that the expression ‘merely incidental to’ requires consideration of whether:

• (a) the private use of the car is independent of the employee’s business use of the car (in which case it is not ‘merely incidental’ to it) or
• (b) the private use follows from the business use (in which case it is)

5. This is a qualitative test which means it is necessary to look at the nature of private use, over the year, by each employee who uses the car.

Journeys starting from home

6. A simple example of the test is where an employee takes a car home in order to make an early start on a business journey the following morning. Where that business journey could not reasonably be undertaken the next day starting from the normal place of work then the journey from work to home, although private, is merely incidental to the business use of the car.

Use while away from home on business

7. Another example is an employee who is staying away from home overnight on a business trip. She uses the car to go to a nearby restaurant in the evening. This use, while it may not be necessary, can be regarded as merely incidental to the necessary business journey and overnight stay.

Amount of private use

8. In practice HMRC find that private use of a car which they accept is a pooled car is usually small in comparison with its business use. But this does not mean a proportion of purely private use can always be allowed. For example, use of a car for an annual holiday would not be merely incidental to the business use of the car, even if that use was only small in comparison with the employees’ business travel in the car in the year in question.

Cars with drivers

9. Particular questions arise where a car and driver are available to employees.

10. First the car and driver may be used to take employees between home and work in order for the employee to work in the car on confidential papers. Travel between home and work is usually private. Working in the car during the journey does not change that. But HMRC’s practice has hitherto been to accept that all such journeys, while private could be merely incidental to the business use of the car without regard to the frequency or length of such journeys or the employees’ other use of the car.

11. HMRC now take the view that the fact an employee is carrying confidential papers on which he or she may be working is only one of the factors to be considered, along with others, when deciding whether a journey is private or business; and, if private, whether or not that private use is merely incidental to its business use. It may be relevant where, for example, papers have to be delivered to a client or are needed for a meeting at the employee’s home. It may also be relevant where the private use is otherwise close to the limits of what would be accepted as merely incidental use. But carrying such papers and working in the car neither changes a private journey into a business journey nor guarantees its use is merely incidental to the employee’s other, business use of the car.

12. Second, a person employed as a chauffeur to drive a pooled car may be obliged to take the car to his home for retention overnight. The chauffeur’s use of the car for this purpose does not of itself disqualify the car from treatment as a pooled car. This has been HMRC’s practice since 1976 and will continue to be the practice. This is on the basis that such use is necessary in the performance of the duties of a chauffeur who is required to take a car home in order to collect or deliver passengers from or to various locations.

Commencement

13. The Statement of Practice will be applied in this form for 2002 to 2003 and subsequent years of assessment. It originally applied from 1996 to 1997 when it referred to the previous legislation.

Note: the text of this statement was updated in August 2003.