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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car benefit calculation Step 3: capital contributions: the amount deductible

Section 132(3) 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)
  • the definition of capital contribution at EIM24350.

Contributions qualifying for deduction

Contributions qualifying for deduction are those made by the employee in that year and any earlier year 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 for the tax year in question.

If an accessory is replaced by a superior accessory (see EIM24265), any capital contribution towards the cost of the old accessory will not qualify for deduction in any year for which the cost of the old accessory is no longer taken into account at step 2. This is likely to mean that it ceases to qualify in the year in which the replacement is made and in all future years.

Limit on amount to be deducted

The amount that can be deducted at step 3 under the rules explained at EIM24350 is limited to the smaller of:

  • £5,000 and
  • the total of the capital sums qualifying for deduction.

Years for which deductions are allowed

See EIM24360.