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HMRC internal manual

Employment Income Manual

Calculating the amount of the car benefit charge: introduction

Section 121 ITEPA 2003

ITEPA 2003 introduced a method statement that explains how the benefit is calculated, but the answer should be the same as under the ICTA 1988 legislation. However, the route taken to reach that answer has changed in some respects. Full details of the ITEPA method statement are at EIM24015.

Broadly, the cash equivalent of car benefit is calculated by multiplying:

  • the price of the car (see EIM24050 onwards), plus
  • the price of accessories for tax purposes (see EIM24200 onwards), by
  • the appropriate percentage (see EIM24500 onwards).

The following are also taken into account:

  • capital contributions by the employee to the cost of the car or accessories (Section 132 ITEPA 2003, see EIM24350 onwards)
  • for years to 2010/11 only, the price (net of capital contributions) is subject to a maximum, Section 121(1) ITEPA 2003, see EIM24440; no limit is applied from 2011/12 onwards
  • periods when the car is unavailable, Section 143 ITEPA 2003, see EIM25100 onwards
  • payments by the employee for private use of the car, Section 144 ITEPA 2003, see EIM25250 onwards
  • if the car is a classic car (Section 147 ITEPA 2003, see EIM24400 onwards) some rules are modified
  • periods when the car is shared, Section 148 ITEPA 2003, see EIM25200 onwards.

The benefit is calculated afresh for each tax year because any of the constituents taken into account in the calculation can change.