HMRC internal manual

Employment Status Manual

ESM8320 - Application of the tax rules: car benefits - example



Mr W is provided with a car by his service company in 2001-02. He is charged to tax on a cash equivalent of £3,000 as a benefit in kind. He drives 12,000 business miles and 8,000 private miles in the year.

The company meets the full running costs of the car of £3,200. The company has a deduction of £4,500 in its accounts for the running costs of the car. This will be allowable in full in arriving at the corporation tax profits (subject to any adjustments for capital costs such as depreciation). It can also claim a deduction in the corporation tax computation for capital allowances on the vehicle in the usual way.

In the deemed payment calculation, a deduction will be due for Mr W’s business proportion of the revenue expenditure at Step Three (12/20 x £3,200). A deduction will also be given at Step Four for capital allowances restricted to Mr W’s business proportion (12/20 x £3,000). As an alternative a deduction may be given at Step Three for the business mileage based upon the Authorised Mileage Rates. In that event no deduction is given at Step Four.

Finally, a deduction will be given at Step Seven for the benefit in kind of £3,000.