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HMRC internal manual

Employment Income Manual

Payments and benefits connected with taxable cars, vans and exempt heavy good vehicles

Sections 228A and 239 ITEPA 2003

Benefits that are provided through OpRA from 6 April 2017 are not covered by existing exemptions within Part 4 of ITEPA 2003 unless the exemption is an excluded exemption. Excluded exemptions include the exemption for payments and benefits connected with taxable cars, vans and heavy good vehicles under section 239 ITEPA 2003.

Cars made available for private use with CO2 emissions of more than 75 grams per kilometre and vans available for private use are within the scope of the OpRA rules.

When a car is made available to an employee, the employee is often provided with connected benefits such as insurance, servicing, vehicle tax and breakdown recovery. When this is the case, an apportionment should be made on a just and reasonable basis between the amount relating to the availability of the car and the amount relating to the connected benefits. The exemption under section 239 ITEPA 2003 means that there is no separate charge to tax under the benefits code in respect of those connected benefits.

The taxable value of the benefit of the availability of the car should be worked out applying the guidance in EIM44070. The benefit of the connected benefits is exempt from income tax.

Administrative expenses linked to the provision of a car or its return at the end of the employee’s use should be treated as part of the costs of making the car available and not as part of connected benefits. These might include monthly fees to cover the costs of operating the lease, costs for collecting the car at the end of the lease and auction charges.

Example

An employee sacrifices £6,000 in exchange for the availability of a car and connected benefits. £5,200 is in respect of the availability of the car and £800 is in respect of servicing, vehicle tax, insurance and breakdown recovery. The modified cash equivalent of the benefit of the car is £5,000. Comparing the amount foregone with the modified cash equivalent, the relevant amount of the benefit of the car is £5,200. The connected benefits are exempt and the taxable value of those benefits remains nil.

When the connected benefits and their underlying costs have been separately identified then you should use those figures provided they have been worked out on a commercial basis. Where the connected benefits have not been separately identified then you should accept an apportionment on a just and reasonable basis, having regard to the nature of the benefits in question.