What is car benefit?
Car benefit is a charge to tax on an employee for the benefit of having a car available for private use and is also used to assess liability for Class 1A NICs. It does so by treating the employee as though their earnings for tax were higher by a notional sum (the `cash equivalent' of the benefit).
The employer, or sometimes a third party, will be responsible for paying Class 1A NICs on the cash equivalent of the benefit. The special rules for car benefit are used instead of the normal rules for the tax treatment of assets placed at the disposal of an employee.
There are two main aspects to consider. These are:
- are the conditions present for a car benefit charge to apply?
- if so, what is the amount of the car benefit charge and what does it cover?
You can find detailed guidance on car benefit for tax at EIM23000 onwards and for NICs at NIM16001 onwards.
The employer's obligations
The employer must:
- tell HMRC when a car is first provided, or where there is a change in the provision of a car. Follow this link for guidance on reporting for tax and NICs
- work out the amount of the taxable benefit of the car and report it to HMRC on form P11D after the end of the tax year
- pay Class 1A NICs on the taxable benefit of the car
- account to HMRC for the tax that the employee has to pay on the taxable benefit of the car.
The employer must also work out whether there is also a car fuel benefit charge.
Working sheet
There is a working sheet on calculating car benefit included with the P11D series of forms (P11D working sheet 2).
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