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HMRC internal manual

Employment Income Manual

Car benefit calculation Step 3: capital contributions: years when deduction is allowed

Section 132(2) 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 
  • the amount allowable at EIM24355.

Years when deduction is allowed

The allowable amount of the capital contribution (see EIM24355) is deducted at step 3:

  • for the year in which the contribution is made and
  • for all subsequent years in which the employee is chargeable to tax in respect of the car by virtue of Section 120 ITEPA 2003.

Deduction specific to the car and the employee

The deduction relates only to the car to which the contribution was made. Therefore when an employee’s car is changed, any contribution towards the cost of the old car is not carried forward to count against the price of the new car. Similarly, if a car is transferred from one employee to another, the first employee’s capital contributions are not taken into account in calculating the benefit of that car for the second employee.