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HMRC internal manual

Employment Income Manual

Optional remuneration arrangements: vans made available for private use

Sections 154, 154A and 155 ITEPA 2003

From 6 April 2017, the Income Tax and NICs advantages where benefits are provided through arrangements in which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

Transitional provisions apply for a limited period. For further details see EIM44030.

Certain benefits in kind are excluded from the changes. For further details see EIM44130.

Where a van is made available to an employee, the relevant amount to treat as earnings from the employment is the greater of:

  • the modified cash equivalent of the benefit of the van, and
  • the amount foregone with respect to the benefit of the van

The modified cash equivalent in relation to the benefit of a van means the amount which would be the cash equivalent under the normal benefit in kind rules but ignoring any payments made by the employee for the private use of the van.

Once the relevant amount has been determined a deduction is then made for any private use contribution made by the employee that he or she was required to make as a condition of being able to use the van privately.

Where a number of separate benefits are provided to an employee in conjunction with optional remuneration arrangements, usually the employer and the employee will be aware of the value of the salary or cash given up for each respective benefit and the employer should be able to report the appropriate value. However, where the amount given up for each benefit is not separately identified, the value should be apportioned on a just and reasonable basis taking into account the facts and circumstances, as long as the total equals the total of the amount foregone.

Example

An employee has a van made available to them under an optional remuneration arrangement that does not meet the restricted private use condition as the van is available for the employee’s private use. As part of the arrangement, the employee has agreed to give up £300 salary each month. The employee makes no further payments for the private use of the van.

The modified cash equivalent of the benefit of the van is worked out under the normal method for the tax year 2017 to 2018 as £3,230. The relevant amount to treat as earnings is the higher of the modified cash equivalent of the benefit (£3,230) and the amount foregone (£3,600 (£300 x 12)).