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HMRC internal manual

Employment Income Manual

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Car benefit calculation Step 8: payments for private use: examples

Before reading this guidance, please ensure that you are familiar with the method of calculating the cash equivalent of a car benefit (section 121 ITEPA 2003) EIM24015.

The requirements for a private use deduction are:

  • The employee is required to pay an amount of money for the private use of the car; and
  • The employee actually pays that amount in the same tax year; and
  • The payment is a condition of the car being available for the employee’s private use.

Facts for examples 1 to 4 below

  • The car’s list price is £45,000
  • The lease is in the employer’s name
  • The appropriate percentage is 34%

Example 1

The direct meets the monthly lease payments from her director’s loan account, paying a total of £12,000 in the tax year.

Is this a private use payment? No - the payment is necessary for both business and private use, so it is not a private use payment. The director is also not required to make the payment.

The provisional sum (£45,000 x 34%) is £15,300

The cash equivalent of the benefit is £15,300

Example 2

The employer requires the employee to meet half the lease costs every month if the car is to be used for private use and a total of £6,000 is paid in the tax year.

Is this a private use payment? No - the employee is required to pay this amount as a condition of using the car for private use, but it is not a payment for private use because the lease payment means the car is available for both private and business use.

The provisional sum (£45,000 x 34%) is £15,300

The cash equivalent of the benefit is £15,300

Example 3

Before the employee was provided with a new car, the employer held discussions with the employee. The employee was told that they could pick a car from a range of cars, but it they wanted to use the car for private use they must pay £200 per month. She paid £2,400 in the tax year.

Is this a private use payment? Yes - the payment is specifically for being able to use the car for private use and no other reason.

The provisional sum (£45,000 x 34%) is £15,300

The cash equivalent of the benefit is (£15,300 - £2,400) is £12,900

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Facts for examples 4 to 5

  • The list price of the car is £16,695
  • The lease is in the employer’s name
  • The appropriate percentage is 17%
  • The fuel benefit multiplier (2014-15) is £21,700

Example 4

Before the employee was provided with a new company car, the employer held discussions with the employee. The agreement the employer and employee entered into stated that if the employee wanted to use the car for private use she must pay £250 per month. She paid £3,000 in the tax year.

The employer agreed to provide fuel for private and business use but did not require any repayment for the private mileage.

Is this a private use payment? Yes - the payment is specifically for being able to use the car for private use and no other reason.

The provisional sum (£16,659 x 17%) is £2,832

The cash equivalent of the car benefit is (£2,832 - £3,000) is £nil

The employee has paid more than the provisional sum by £168: this cannot be used to reduce the cash equivalent of the benefit any further.

There is a car benefit, even though it is £nil, which means that there will also be a fuel benefit charge (£21,700 x 17%) of £3,689.

Example 5

Before the employee was provided with a new company car, the employer held discussions with the employee. The agreement that the employer and employee entered into stated that the employee could chose any car they wanted as a company car, but the employee had to make a financial contribution for some cars and if the employee wanted to use the car for private use she had to pay £150 per month (£1,800 in the tax year).

The employee chose a car where she had to pay an extra contribution of £175 per month (£2,100 in the tax year); she also decided that she wanted to use the car for private use the car for private mileage. She paid a total of £3,900 in the tax year.

Is this a private use payment? The £1,800 is specifically for being able to use the car for private use and no other reason, so it qualifies as a private use payment. However, the additional payment of £2,100 for the car she wanted is not a private use payment, as it is for the availability of a more expensive car.

The provisional sum is (£16,659 x 17%) is £2,832

The cash equivalent of the car benefit (£2,832 - £1,800) is £1,032

Example 6

The employee has a salary of £37,000 a year. Her employer offers to lease a car, which will be available for business and private use, if she gives up some of her salary (sometimes known as a salary sacrifice). She will be allowed to use the car for private use. The employer enters into an agreement with her employer to give up £2,040 per year from her gross salary - the equivalent of £170 per month - which is paid by her employer to the car leasing company. Her gross salary is then £34,960.

The employer has made a car available to the employee (without any transfer of the property in it); and the car was made available by reason of the employment; and the car is available for her private use (see EIM23020). This means a car benefit charge applies.

Are the payments made by the employee private use payments? No - she hasn’t made any payments. The reduction in her salary is not a payment and cannot be deducted as a private use payment.

The list price of the car is £11,995. Its CO2 emissions are 105g/km, which equates to an appropriate percentage of 16% in 2015-16.

The provisional sum (£11,995 x 16%) is £1,919

The cash equivalent of the benefit is £1,919

This means that the employee will be taxed on a reduced gross salary of £34,960 plus a company car benefit of £1,919, a total of £36,879.