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HMRC internal manual

Employment Income Manual

Car benefit: special cases: employees in the motor industry (to 2008/09): frequent changes of car: calculating the car benefit charge

The system for charging car benefits based on price and CO2 emissions could mean a considerable amount of record keeping and administrative work where there are very frequent changes of cars. HMRC staff can take measures locally to accommodate these administrative difficulties within the terms of the car benefit legislation. The measures are applied solely for the purpose of simplifying the calculation of the amount of the car benefit charge and are not intended to result in a lower tax charge for the employees involved. In appropriate cases an averaging approach can be applied to the calculation of the car benefit charge. In effect, a single notional car is substituted for the multitude of actual cars available to these particular employees.

The averaging procedure will mainly affect:

  • employees in the retail motor trade
  • employees in the motor leasing and hiring trades
  • other employees in the motor trade who have very frequent changes of cars.

But you should exclude those employees who have a particular car allocated to them on an exclusive basis for a predictable period of time. For example, an employee who gets a different car made available once a month would not come within the arrangements.

Averages should be agreed for both:

  • the price of the notional car (the figure at step 4 of the calculation in Section 121(1) ITEPA 2003, see EIM23760) and
  • the carbon dioxide (CO2) emissions figure of the notional car, see EIM23765. Note: an average appropriate percentage should not be agreed.

Neither should be agreed in isolation. The creation of a notional car requires that both are agreed as this allows changes in the lower threshold to take effect for all drivers, whether or not their car is dealt with under an averaging agreement.

See EIM23770 for guidance on procedures and record-keeping.

This approach is not intended to result in a lower tax charge than would be the case if the car benefit were calculated separately for every single car. So the averaging method should be based on the facts regarding the type and frequency of use of the cars actually made available to each employee. In particular, there should be no reduction of benefit charges beyond that provided for in the legislation, nor should the employees and directors be treated as if they had cars of lower prices than those actually made available to them. See EIM23775 for more about claims to special treatment.

Note that employees who are not in excluded employment (2015/16 and earlier) are entitled to have their car benefit charge computed under the statutory arrangements on the basis of the particular cars made available to them throughout the year should they request it.

2009/10 and later years

See EIM23815 onwards.