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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 arrangement

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

If the replacement car is materially better than the normal car (see EIM25130), it can still be treated as a replacement car as long as it is not made available under an arrangement of which the main purpose, or one of the main purposes, was to provide the employee with the benefit of a car that is materially better than the normal car.

It is not uncommon for an employee to be provided with a materially better replacement car, and for it to be entirely clear that there were no arrangements that had a main purpose of providing the employee with a materially better car than the normal car (see example EIM25180).

For the arrangement to be one whose main purpose (or one of the main purposes) is to provide the employee with a materially better car than the normal one, there will need to be a specific intention to provide the employee with a materially better car (see example EIM25185).