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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car benefit calculation: method statement

Section 121 ITEPA 2003

Car benefit is calculated in a series of numbered steps as required by the method statement in Section 121(1) ITEPA 2003.

Statutory language of Section 121(1): guidance begins at the EIM references shown

Step 1 EIM24050 Find the price of the car in accordance with Sections 122 to 124 ITEPA 2003.
Step 2 EIM24200 Add the price of any accessories that fall to be taken into account in accordance with Sections 125 to 131 ITEPA 2003.
Step 3 EIM24350 Make any deduction under Section 132 ITEPA 2003 for capital contributions made by the employee to the cost of the car or accessories.
Step 4 EIM24440 For years to 2010/11 only, the interim sum is limited to £80,000 if the amount carried forward from step 3 exceeds that amount.

In any other case, the interim sum is the amount carried forward from step 3. From 2011/12 onwards, this amount is unlimited.

Strictly, there is no Step 4 after 2010/11, but it is retained here so as not to suggest that something has been omitted from the guidance in error.      
  Step 5 EIM24500 Find the appropriate percentage for the car for the year in accordance with Sections 133 to 142 ITEPA 2003.
  Step 6 EIM25000 Multiply the interim sum by the appropriate percentage for the car for the year.
  Step 7 EIM25100 Make any deduction under Section 143 ITEPA 2003 for any periods when the car was unavailable.
The resulting amount is the provisional sum.      
  ‘Step 7A’ EIM25200 Make any reduction under Section 148 because the car is shared (although not formally part of the section 121(1) structure, the reduction takes place at this stage in the calculation, so is dealt with here)
  Step 8 EIM25250 Make any deduction from the provisional sum under Section 144 ITEPA 2003 in respect of payments by the employee for the private use of the car.
The result is the cash equivalent of the benefit of the car for the year.

Other points to take into account: Section 121(2) and (3)

There are:

  • special rules for cars that run on petrol and road fuel gas, summarised at EIM24825, and
  • special rules for classic cars of 15 years of age or more (Section 147 ITEPA 2003, see EIM24400)
  • various special rules for disabled employees, see EIM23650.