SE23163 - Car benefits: repayments of capital contributions

Occasionally you will find cases where 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 under Schedule E on the amount repaid. Such an agreement would not prevent the reduction of the price of the car under SE23160 for the period when the benefit arises. (See example SE23190)

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 168D ICTA 1988.

Note

This provision applies to contributions of capital sums 'to expenditure on the provision of the car or qualifying accessories'. That means you would expect to see the payment made at or about the time when the car or accessory in question is provided. If there is no agreement governing the terms of the contribution then other evidence of a payment by the employee should be sought.

Cases of difficulty should be submitted to Employment Income Technical.