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HMRC internal manual

Employment Income Manual

Optional remuneration arrangements: cars made available for private use: examples

Example 1

An employee has a car made available to them in the tax year 2017 to 2018 under the terms of an optional remuneration arrangement under which they give up £300 salary per month (£3,600 per annum).

The employee also makes a capital contribution of £1,500 for a higher specification vehicle.

The car has a list price of £20,000 and an appropriate percentage of 17% (based on CO2 emissions and adjusted where applicable e.g. diesel).

The cash equivalent value of the vehicle would normally be £3,145 (£20,000 minus capital contribution £1,500 = £18,500 × 17%).

The modified cash equivalent will, however, be £3,400 (£20,000 × 17%) as no account is taken of the capital contribution.

The modified cash equivalent is then compared with the amount foregone.

The amount foregone (£3,600) is greater than the modified cash equivalent (£3,400), so £3,600 is used to determine the relevant amount.

The relevant amount to treat as earnings is £3,600 minus £255 (capital contribution of £1,500 × 17%) = £3,345.

For tax year 2017 to 2018, and 2018 to 2019, where the car is available for less than the full tax year, you should still allow a deduction for the full amount of the capital contribution multiplied by the appropriate percentage.

For tax years 2019 to 2020 onwards, the amount of the capital contribution will be reduced by applying the availability factor (see example 1A).

Example 1A

An employee has a car made available to them in the tax year 2019 to 2020 under the terms of an optional remuneration arrangement under which they give up £300 per month.

The car is first made available on 6 October 2019 and as in example 1 above, the employee also makes a capital contribution of £1,500 for a higher specification vehicle.

The car has a list price of £20,000 and an appropriate percentage of 17%.

The modified cash equivalent of the car will be £1,700 (£20,000 × 17%) = £3,400 less deduction for unavailability.

The availability factor here is 0.5 ((366 − 183) ÷ 366).

£3,400 × 0.5 = £1,700.

The modified cash equivalent is then compared to the amount foregone £1,800 (£300 × 6 months). The amount foregone is greater than the modified cash equivalent (£1,700) and so £1,800 is used to determine the relevant amount.

The relevant amount to treat as earnings is £1,800 minus £128 (capital contribution of £1,500 × 17% × 0.5 availability factor) = £1,672.

Example 2

An employee has the option of a cash allowance of £5,000 which she gives up for a car, in tax year 2019 to 2020, with a modified cash equivalent of £3,000 and an appropriate percentage 17%.

The employee wanted a higher specified model with leather seats costing a further £500. So, she made a payment of £500 to her employer out of her taxed pay.

The amount foregone is £5,000 which is compared with the modified cash equivalent of £3,000.

The relevant amount is £5,000. The payment of £500 is treated as a capital contribution. The relevant amount to treat as earnings is reduced by £85 (£500 × 17%).