»Ê¹ÚÌåÓýapp

Before reading this guidance, please ensure that you are familiar with the method of calculating the cash equivalent of a car benefit (section 121 ITEPA 2003) EIM24015.

»Ê¹ÚÌåÓýapp requirements for a private use deduction are:

• »Ê¹ÚÌåÓýapp employee is required to pay an amount of money for the private use of the car; and
• »Ê¹ÚÌåÓýapp employee actually pays that amount in the same tax year (or by 6 July after the tax year from 2017/18 onwards); and
• »Ê¹ÚÌåÓýapp payment is a condition of the car being available for the employee’s private use.

Facts for examples 1 to 4 below

• »Ê¹ÚÌåÓýapp car’s list price is £45,000
• »Ê¹ÚÌåÓýapp lease is in the employer’s name
• »Ê¹ÚÌåÓýapp appropriate percentage is 34%

Example 1

»Ê¹ÚÌåÓýapp director meets the monthly lease payments from her director’s loan account, paying a total of £12,000 in the tax year.

Is this a private use payment? No - the payment is necessary for both business and private use, so it is not a private use payment. »Ê¹ÚÌåÓýapp director is also not required to make the payment.

»Ê¹ÚÌåÓýapp provisional sum (£45,000 x 34%) is £15,300

»Ê¹ÚÌåÓýapp cash equivalent of the benefit is £15,300

Example 2

»Ê¹ÚÌåÓýapp employer requires the employee to meet half the lease costs every month if the car is to be used for private use and a total of £6,000 is paid in the tax year.

Is this a private use payment? No - the employee is required to pay this amount as a condition of using the car for private use, but it is not a payment for private use because the lease payment means the car is available for both private and business use.

»Ê¹ÚÌåÓýapp provisional sum (£45,000 x 34%) is £15,300

»Ê¹ÚÌåÓýapp cash equivalent of the benefit is £15,300

Example 3

Before the employee was provided with a new car, the employer held discussions with the employee. »Ê¹ÚÌåÓýapp employee was told that they could pick a car from a range of cars, but it they wanted to use the car for private use they must pay £200 per month. She paid £2,400 in the tax year.

Is this a private use payment? Yes - the payment is specifically for being able to use the car for private use and no other reason.

»Ê¹ÚÌåÓýapp provisional sum (£45,000 x 34%) is £15,300

»Ê¹ÚÌåÓýapp cash equivalent of the benefit is (£15,300 - £2,400) is £12,900

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Facts for examples 4 to 5

• »Ê¹ÚÌåÓýapp list price of the car is £16,695
• »Ê¹ÚÌåÓýapp lease is in the employer’s name
• »Ê¹ÚÌåÓýapp appropriate percentage is 17%
• »Ê¹ÚÌåÓýapp fuel benefit multiplier (2014-15) is £21,700

Example 4

Before the employee was provided with a new company car, the employer held discussions with the employee. »Ê¹ÚÌåÓýapp agreement the employer and employee entered into stated that if the employee wanted to use the car for private use she must pay £250 per month. She paid £3,000 in the tax year.

»Ê¹ÚÌåÓýapp employer agreed to provide fuel for private and business use but did not require any repayment for the private mileage.

Is this a private use payment? Yes - the payment is specifically for being able to use the car for private use and no other reason.

»Ê¹ÚÌåÓýapp provisional sum (£16,659 x 17%) is £2,832

»Ê¹ÚÌåÓýapp cash equivalent of the car benefit is (£2,832 - £3,000) is £nil

»Ê¹ÚÌåÓýapp employee has paid more than the provisional sum by £168: this cannot be used to reduce the cash equivalent of the benefit any further.

»Ê¹ÚÌåÓýappre is a car benefit, even though it is £nil, which means that there will also be a fuel benefit charge (£21,700 x 17%) of £3,689.

Example 5

Before the employee was provided with a new company car, the employer held discussions with the employee. »Ê¹ÚÌåÓýapp agreement that the employer and employee entered into stated that the employee could chose any car they wanted as a company car, but the employee had to make a financial contribution for some cars and if the employee wanted to use the car for private use she had to pay £150 per month (£1,800 in the tax year).

»Ê¹ÚÌåÓýapp employee chose a car where she had to pay an extra contribution of £175 per month (£2,100 in the tax year); she also decided that she wanted to use the car for private use the car for private mileage. She paid a total of £3,900 in the tax year.

Is this a private use payment? »Ê¹ÚÌåÓýapp £1,800 is specifically for being able to use the car for private use and no other reason, so it qualifies as a private use payment. However, the additional payment of £2,100 for the car she wanted is not a private use payment, as it is for the availability of a more expensive car.

»Ê¹ÚÌåÓýapp provisional sum is (£16,659 x 17%) is £2,832

»Ê¹ÚÌåÓýapp cash equivalent of the car benefit (£2,832 - £1,800) is £1,032

Example 6

»Ê¹ÚÌåÓýapp employee has a salary of £37,000 a year. Her employer offers to lease a car, which will be available for business and private use, if she gives up some of her salary (sometimes known as a salary sacrifice). She will be allowed to use the car for private use. »Ê¹ÚÌåÓýapp employer enters into an agreement with her employer to give up £2,040 per year from her gross salary - the equivalent of £170 per month - which is paid by her employer to the car leasing company. Her gross salary is then £34,960.

»Ê¹ÚÌåÓýapp employer has made a car available to the employee (without any transfer of the property in it); and the car was made available by reason of the employment; and the car is available for her private use (see EIM23020). This means a car benefit charge applies.

Are the payments made by the employee private use payments? No - she hasn’t made any payments. »Ê¹ÚÌåÓýapp reduction in her salary is not a payment and cannot be deducted as a private use payment.

»Ê¹ÚÌåÓýapp list price of the car is £11,995. Its CO2 emissions are 105g/km, which equates to an appropriate percentage of 16% in 2015-16.

»Ê¹ÚÌåÓýapp provisional sum (£11,995 x 16%) is £1,919

»Ê¹ÚÌåÓýapp cash equivalent of the benefit is £1,919

This means that the employee will be taxed on a reduced gross salary of £34,960 plus a company car benefit of £1,919, a total of £36,879.