The Fizz! Blog

Do you feel rich or poor?

We've been talking about this article from Saturday's Guardian a lot in the office - it's a series of short interviews with anonymised members of the public about their finances and whether they feel rich or poor.  In some regards, it's obviously designed to wind up Guardian readers with some very well-off people bemoaning what they perceive as relative poverty.  It's very effective in that capacity!  The guy with a family income of £100k to £150k who says "What we are is the forgotten middle" is a comic genius.

The thing is, whether the person or family feel rich or poor actually bears little relation to their level of income.  What matters is their level of income compared to the level of income they perceive that they deserve, or are worth, or that they know or imagine that others have.  Clearly, a family with an income of £130,000 a year have no right to claim that they're not well off, in the minds of most people.  If a family has a net income of something like £7,500 a month but can't save up for a deposit for a house, then that probably isn't because they're not well off - it's because they're choosing to allocate their income towards things other than savings.  It's often easier for others to see that than it is to see it yourself, though - we often speak with people who don't think they can save anything but are making monthly payments on a very expensive car, for example.

But, just because someone isn't poor doesn't mean they don't genuinely believe that they are.  The title of the article, "Do Britons feel rich or poor?" is very important - it's not a question of whether you *are* rich or poor, it's a question of whether you *feel* rich or poor.  For a useful insight into those feelings, I often recommend reading the excellent "The Millionaire Next Door".  Amongst other things, it makes a convincing case that those who manage to save and accumulate wealth and security are usually those who, rather than constantly moving to better houses and neighbourhoods, stay put.  If you move into an area where people are relatively wealthy, you may have a pretty expensive set of possessions and lifestyles to compare your own to - and they'll only get more high-maintenance as you climb the ladder.  If you stay in a more modest neighbourhood, you'll be surrounded by less expensive lives, and you may be just as happy.

If you're the woman in the article who is discontented with her £1m income, there's no hope for you, though.

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Pool cars kept at home - a glimmer of hope?

If, as an employee or company director, you have access to a car for private use, then you have to pay tax as a result.  That's the case even if you don't use the car privately - the fact that you could have used it privately if you'd wanted to is enough.

It is possible for an employer to have a pool car - a car that's used for business, but isn't available for anyone's private use, meaning no individual has to pay tax on it.  However, for a small business, demonstrating to HMRC that you've made the car unavailable for private use is difficult, almost to the point of impossibility.  In particular, if the business is run from home, the car will probably sit outside the house, and that's enough for HMRC to be convinced it's available for private use, whatever procedures and policies you draw up.  Many directors have tried to avoid tax on a pool car kept at their house, and many have failed.

However, a recent tax tribunal did find in favour of the taxpayer in such a case.  A car was kept outside the house of the company secretary, who worked for the business full time.  The house was also his main place of work.  A key difference from most such cases, though, was that other employees used the car as well, not just the company secretary.  The home was clearly the most sensible place to keep the car under the circumstances, and the car wasn't kept there just to make it convenient for private use - if the secretary had an office elsewhere, then that's where the car would have been.

So, it is possible to successfully demonstrate that a company car kept at home is a pool car.  But it's likely that the other employees made the difference - one-man/woman-band limited companies are still likely to find the argument tough to win.

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