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HMRC internal manual

Employment Income Manual

Car benefit calculation Step 3: capital contributions: repayment of capital contributions

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)
  • the definition of capital contribution at EIM24350.


Occasionally you will find that an employer’s car scheme allows for part of the capital contribution to be refunded to the employee on the sale of the vehicle to a third party.

The terms of the agreement between the employer and the employee governing the payment of the contribution towards the cost of the car may be such that, on the sale of the vehicle, the employee will be entitled to be repaid that proportion of his or her original contribution that the sale proceeds bear to the original cost of the car. If that is the case, there will be no tax liability as employment income on the amount repaid. Such an agreement would not prevent a deduction at step 3 (see EIM24350) of the full allowable amount of the capital contribution (see EIM24360) for the period when the benefit arises, see examples at EIM24465.

However, if the agreement provides that the amount will be repaid in full on the eventual disposal of the car, the employee would not be regarded as having made a capital contribution within Section 132 ITEPA 2003.

Equally, if the agreement specifies an amount which will be repaid whatever the sale proceeds of the car, that amount will not qualify as a capital contribution. It is not a contribution, but a loan.

Timing of the capital contribution

See EIM24350 for guidance on this.

Ownership of the vehicle or accessory

Note that it makes no difference whether or not the employee acquires part ownership. The treatment is the same in both cases because part ownership is not mentioned in the legislation.