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HMRC internal manual

Employment Income Manual

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Termination payments and benefits: example: interaction with benefits received during employment: Section 401 ITEPA 2003 and Part 3 Chapter 6 ITEPA 2003

Section 401 and Part 3 Chapter 6 ITEPA 2003 (car benefits)

Benefits given during employment can continue after it. This example shows how to calculate the taxable amounts for the year of assessment in which the termination occurs where Part 3 Chapter 6 ITEPA 2003 (car benefits) is involved. There is another example at EIM13905 where Part 3 Chapter 10 ITEPA 2003 is involved.

An employer agrees to continue the provision of private use of a car for 2 years following termination of employment on 5 July 2003. A cash termination payment of £25,000 is also agreed. EIM24000 onwards explains the calculation of the benefit for 2002/03 under the benefits code. The price of the car is £22,500 (calculated as in EIM24010). The cash equivalent of the benefit for 2003/04 under Part 3 Chapter 6 ITEPA 2003 up to the date of termination is as follows, see EIM23700:

Appropriate percentage of price of the car (CO2 emissions 155g/km, EIM24700) £22,500 x 15% £3,375
     
Time apportionment (see EIM23700 and EIM25100) £3,375 x 275/366 £2,536
    £839

The Section 401 ITEPA 2003 charge for the period after termination uses the same cash equivalent rules (see EIM13270) and so is identical except for the time-apportionment element. The calculation is then:

Appropriate percentage of price of the car (see EIM24700) £22,500 x 15% £3,375
     
Time apportionment (see EIM23700 and EIM25100) £3,375 x 91/366 £839
Total   £2,536
Threshold (see EIM13505)   £2,536
Section 401 ITEPA 2003   nil
  Threshold c/f to 2004/05 = £30,000 less £25,000 less £2,536 = £2,464  

So the amount chargeable for 2003/04 is £832 plus nil = £832.