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HMRC internal manual

Employment Status Manual

Application of the tax rules: car benefits

The company may include a deduction in its accounts for the revenue costs of running that car and, up to 5 April 2002, claim capital allowances on any capital costs. Again, nothing in the legislation affects these deductions which should be calculated in the usual way.

A deduction may be given at Step Three of the deemed payment calculation for the actual running costs of using the car for business travel met by the company (the worker’s business proportions of expenditure on fuel, insurance, maintenance and so on). A deduction may also be given at Step Four for capital allowances in respect of the capital cost of the vehicle (up to 5 April 2002) - again restricted to the worker’s business proportion. As an alternative, a deduction may be given at Step Three for an amount based upon the Inland Revenue Authorised Mileage Rates. These amounts include an element to reflect capital costs so if used no deduction should be given at Step Four.

Where the worker receives a benefit in kind which is chargeable to tax as employment income in respect of use of the car and fuel then a further deduction will be due at Step Seven. The amount to be deducted is the amount of the taxable benefit in kind.

See example ESM8320