EIM23193 - Car benefit: repayments of capital contributions
Section 132 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 relates to step 3)
- the definition of capital contribution at EIM23190.
Repayments
Occasionally you will find that an employer's car scheme allows
for part of the capital contribution to be refunded to the employee
on the sale of the vehicle to a third party.
The terms of the agreement between the employer and the
employee governing the payment of the contribution towards the cost
of the car may be such that, on the sale of the vehicle, the
employee will be entitled to be repaid that proportion of his or
her original contribution that the sale proceeds bear to the
original cost of the car. If that is the case, there will be no tax
liability as employment income on the amount repaid. Such an
agreement would not prevent a deduction at step 3 (see
EIM23190) of the full allowable amount
of the capital contribution (see
EIM23192) for the period when the
benefit arises, see examples at
EIM23220.
However, if the agreement provides that the amount will be
repaid in full on the eventual disposal of the car, the employee
would not be regarded as having made a capital contribution within
Section 132 ITEPA 2003.
Equally, if the agreement specifies an amount which will be
repaid whatever the sale proceeds of the car, that amount will not
qualify as a capital contribution. It is not a contribution, but a
loan.
Timing of the capital contribution
See EIM23190 for guidance on this.
Ownership of the vehicle or accessory
Note that it makes no difference whether or not the employee acquires part ownership. The treatment is the same in both cases because part ownership is not mentioned in the legislation.
