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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Car benefit calculation Step 7A: shared car: employees to be disregarded: just and reasonable basis

Section 148 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 7A).

The basis on which Section 148 operates is described at EIM25200.

Employees to be disregarded

The legislation says that the availability of the car to any employee who for 2015/16 and earlier is in an excluded employment (EIM20007), is to be disregarded in arriving at a just and reasonable basis.

Example: the facts show that a car is shared equally by three unrelated employees, A, B and C. One of them (C) is in an excluded employment, so the legislation requires that the availability of the car to employee C be disregarded. The availability of the car to the remaining employees is therefore half each, so the cash equivalent of the car is allocated:

  • A - 50%
  • B - 50%
  • C - 0%

Note that 100% of the cash equivalent of the car is always chargeable.

What is a just and reasonable basis?

Other than determining which employees are to be taken into account, the legislation is silent about this.

There will often be more than one way of deciding what is a just and reasonable basis. It is primarily for the employer and employees to decide this between themselves, bearing in mind that it is the availability of the car to each employee that is being taxed. It does not necessarily follow that their basis is not in accord with the legislation if they choose one method and you would have chosen another.

Because of this, you should generally avoid being drawn into the decision-making process. You should be able to accept the basis on which they agree, unless you find:

  • that less than 100% of the cash equivalent of the car is being taxed, or
  • that their basis takes advantage of employees’ different tax rates in a way that does not accord with the underlying facts.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Years before 2003/04

These arrangements were formerly part of Extra-Statutory Concession A71. The other part of the concession (the same car chargeable on more than one member of the same family or household) has been legislated at Section 169 ITEPA 2003 (see EIM23550).