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HMRC internal manual

Employment Income Manual

Car benefit calculation Step 1, price of the car: notional price

Section 124 ITEPA 2003

Before reading the guidance that follows this paragraph, ensure that you are familiar with:

  • the method statement in Section 121(1) ITEPA 2003, see EIM24015 (this page concerns step 1)
  • the general introduction at EIM24050 
  • the flowchart at EIM24055 
  • when the notional price can be used, EIM24100.

Notional price

This means the price that might reasonably have been expected to be the car’s list price if its manufacturer, importer or distributor (as the case may be, see EIM24110) had published a price as the inclusive price appropriate for a sale of a car of the same kind sold:

  • in the United Kingdom,
  • singly,
  • in a retail sale,
  • in the open market,
  • on the day immediately before the date of the car’s first registration and
  • with accessories equivalent to the qualifying accessories (see EIM24205) available with the car at the time when it was first made available to the employee.

Inclusive price has the same meaning as in Section 123 ITEPA 2003 (see EIM24105).

Imported car with no UK list price

An imported car may not have a UK list price, perhaps because the car is left hand drive, or because it is a model not introduced into the UK market. Where there is no UK list price for a particular car, we must use its notional price (as defined above) instead.

A simple conversion of an overseas list price into sterling is unlikely to result in a figure that equates to the price that might reasonably have been expected to be the UK list price. Depending on the circumstances in the overseas country, the sterling equivalent of the overseas list price could result in a sterling figure that is either higher or lower than the price that might reasonably have been expected to be the UK list price. We must calculate the price of the car for car benefit purposes on the correct statutory basis, irrespective of whether the conversion into sterling of an overseas list price gives rise to a higher or lower figure than the correct amount.

So if the notional price of a car purchased overseas cannot be arrived at simply by converting the overseas retail price into sterling, how do we calculate it?

There is no single method of calculation that will result in the right amount in all cases. A couple of examples of the approach to identifying what we would have expected the UK list price to be are set out at EIM24455. These examples are not meant to cover all possible scenarios, and other methods may be appropriate, depending on the particular facts and circumstances.

Particular cars

In exceptional circumstances, PAYE Technical is prepared to agree a notional price to apply nationally. Details of all such agreements are at EIM24155.