EIM23532 - Car benefit: calculation of charge: deduction for payments for private use of the car: payments for a more expensive car

Section 144 ITEPA 2003

Before reading the guidance that follows this paragraph, ensure that you are familiar with:

• the method statement in Section 121(1) ITEPA 2003, see EIM23101 (this page illustrates step 8)
• the guidance on step 8 at EIM23530.

Some employers place a limit on the value or type of car that they will make available to an employee. Occasionally the employer is willing to allow an employee to have the use of a more expensive car if the employee pays a monthly sum representing the excess, for example, the additional leasing costs over and above the employer's limit. In these cases the payments do not reduce the benefit charge because they do not qualify as payments for the private use of the car under EIM23530. They are merely for the availability of a more expensive car. The Case of Brown v Ware at the Special Commissioners in 1995 provides support for this view. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

However, a reduction in the car benefit charge can be made if the rules of the employer's car scheme make it clear that the extra payments are simply components taken into account by the employer when setting the amount of any payments for private use. It must be clear from the terms and conditions governing availability of the car that the payments are:

• as a condition of the car being available for the employee's private use and
• are specifically for that private use.

This will still be the case even if the extra leasing cost is the only component taken into account in setting the amount of the payments for private use. In effect the extra leasing cost is being used as a method (either on its own, or together with other factors) of fixing the amount that the employee is required to pay for the private use of the car (see EIM23531).

If the employee has simply made a lump sum contribution towards the cost of the car, see EIM23190 onwards on the treatment of capital contributions.