SE36770 - Deductions from emoluments: capital allowances: particular items of machinery or plant: motor vehicles: effect of contributions from employers to wear and tear

Most employees who use their own car or motor cycle in the performance of their duties receive contributions from their employers. The contributions may be in the form of lump sum payments, or mileage allowances, or sometimes a combination of both. The payments may be described as contributions to the running expenses or to the wear and tear of the vehicle.

2002/03 onwards

For 2002/03 onwards, employer contributions which do not exceed the limit for approved mileage allowance payments are exempt from tax (see SE31250 onwards). Payments which exceed the appropriate AMAP limits are taxed on the excess over the AMAP limit.

2001/02 and earlier years

Round sum contributions from employers will normally be emoluments chargeable under Schedule E (see SE10150). In such cases the full amount received as contributions to motoring expenses should be taxed under Schedule E with a deduction given for running expenses under Section 198(1) ICTA 1988 and for capital allowances, if due, under Part 2, CAA 2001 (see SE36500 onwards and SE36750).

Contributions from the employer will not be chargeable in two circumstances.

• Where they do no more than cover the actual cost of fuel and oil consumed on business journeys and the recipient is not within Part V Chapter II ICTA 1988 (see SE20100). In practice, few mileage allowances will be as low as this. Where they are, capital allowances, if due, may be given without any restriction, other than those required for private use (see SE36760) and for cars or motor cycles costing over £12,000 (see SE36750).
• Where the amounts paid are covered by a dispensation given by an Inspector under Section 166(1) ICTA 1988 (see SE30051 onwards). In that case, the capital allowances have to be restricted 'to such an extent as would be just and reasonable having regard to all the relevant circumstances of the case'. So restrict the capital allowances so as to produce the same net position that would have resulted from taxing the contributions and giving deductions for running expenses and capital allowances.