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HMRC internal manual

Employment Income Manual

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Car benefit calculation Step 7, car unavailable: replacement car: meaning of materially better

Section 145(5) 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 illustrates step 7)
  • the treatment of replacement cars at EIM25125.

A replacement car is regarded as materially better than the normal car if:

  • it is materially better in quality, or
  • when calculating the cash equivalent of the benefit of the replacement car, the interim sum calculated under step 4 of Section 121(1) (see EIM24440) is materially higher than the interim sum calculated in relation to the normal car (see EIM24010 onwards).

In most cases replacement cars made available to employees for these short periods will be of a similar quality to the normal car.

If the replacement car is materially better it can still qualify to be treated under the replacement car rules as long as it is not made available under an arrangement of which the main purpose, or one of the main purposes, is to provide the employee with the benefit of a car that is materially better than the normal car, (see EIM25135).