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HMRC internal manual

Employment Income Manual

Car benefit calculation Step 3, capital contributions: definition and effect

Section 132 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 3).

What is a capital contribution

An employee makes a capital contribution if the employee contributes a capital sum, or capital sums, to expenditure on the provision of:

  • the car, or
  • any qualifying accessory that is taken into account in calculating the cash equivalent of the benefit of the car.

Effect of making a capital contribution

The allowable amount of the contribution is deducted at step 3.

Amounts qualifying for deduction are specified at EIM24355.

The years for which a deduction is allowed are specified at EIM24360.

See example EIM24450 and example EIM24460.

Timing of the capital contribution

Note: this provision applies to contributions of capital sums to expenditure on the provision of the car or any qualifying accessory. That means you would expect to see the payment made at or about the time when the car or accessory in question is provided. If there is no agreement governing the terms of the contribution then other evidence of a payment by the employee should be sought.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Ownership of the vehicle or accessory

Note that part ownership by the employee is not required by the legislation.

Other possible payments by the employee

Capital contributions are payments towards the cost of the car or any qualifying accessory. They should not be confused with payments for the private use of the car, which are dealt with separately under Section 144 ITEPA 2003 (see EIM25250 onwards).