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Income Tax (Earnings and Pensions) Act 2003

Overview

414.Employees may be taxable on the benefit of the availability for private use of a car or van, or car fuel that their employers provide. If so, the cash equivalent of the benefit is taxed as the employee’s earnings.

415.This Chapter contains the rules to calculate the cash equivalent of that benefit.

416.Sections 114 to 119 set out the basic principles of the car, car fuel and van benefit rules.

417.Sections 120 and 121 provide for the cash equivalent of the car benefit to be taxed as earnings and the method for calculating that cash equivalent.

418.Sections 122 to 148 give detailed rules in support of the calculation of the cash equivalent of the car benefit.

419.Sections 149 to 153 deal likewise with car fuel benefits.

420.Sections 154 to 166 deal likewise with van benefits.

421.Sections 167 and 168 give special rules that apply to pool vehicles.

422.Section 169 deals with situations where the same employer employs more than one member of a family or household.

423.Section 170 provides for the Treasury to make orders relating to provisions in this Chapter.

424.Sections 171 and 172 give definitions.

Section 114: Cars, vans and related benefits

425.This section sets out the scope of this Chapter and gives signposts to the groups of provisions dealing with the various aspects of the car, car fuel and van benefit rules. The section derives from sections 157(1) and 159AA(1) of ICTA.

426.Subsection (1) states when this Chapter applies.

427.Subsection (1)(b) avoids the use of the phrase “the employee’s employment”. Section 66(2)(a) of this Act identifies for this (and for other sections) the employee to whose employment the legislation applies.

428.Subsection (2) gives signposts to the groups of provisions applying to car, fuel and van benefits.

429.Subsection (3) prevents a double tax charge arising on car, car fuel or van benefits.

430.Subsection (4) gives signposts to provisions providing exceptions to the main rules.

Section 115: Meaning of “car” and “van”

431.This section defines “car” and “van” and related terms for the purposes of this Chapter. The section derives from parts of sections 168(5) and 168(5A) of ICTA.

432.Subsection (1) defines “car” and “van”.

433.Subsection (2) defines terms relevant only to the definitions of “car” and “van”, so that all such terms are located together.

Section 116: Meaning of when car or van is available to employee

434.It is the availability to an employee of a car or van for private use that may give rise to a tax charge. This section explains what a car or van being available to an employee means. The section derives from sections 168A(12), 168AA(4), 168B(8), 168C(3) and 168F(10), paragraph 10 of Schedule 6 and paragraph 12 of Schedule 6A to ICTA.

435.Subsection (1) extends the meaning of a car or van being available to an employee to include its being made available to members of the employee’s family or household.

436.Subsection (2) defines when such cars first became available at all and when they are last available in the year.

437.Subsection (3) provides that this section does not apply to section 138 of this Act. That section therefore applies only to an employee who is disabled and not to members of that employee’s family or household as well.

Section 117: Meaning of car or van made available by reason of employment

438.To give rise to a tax charge, the car or van must be made available to the employee by reason of the employment. This section provides that a car or van made available by an employer is regarded as made available by reason of the employment unless the circumstances in paragraphs (a) and (b) apply. The section derives from part of section 168(6) of ICTA.

Section 118: Availability for private use

439.This section explains what is meant by availability for private use of a car or van. The section derives from parts of section 168(5), 168(5A), and 168(6) of ICTA.

440.Subsection (1) provides that the car or van is regarded as available for private use unless the circumstances in paragraphs (a) and (b) apply.

441.Subsection (2) defines “private use”.

Section 119: Where alternative to benefit of car offered

442.This section identifies the relationship between this Chapter and the provisions in Chapter 1 of Part 3 of this Act. The section derives from section 157A of ICTA.

Section 120: Benefit of car treated as earnings

443.This section provides that the cash equivalent of the benefit arising from the provision of a car is treated as an employee’s earnings. The section derives from part of section 157(1) of ICTA.

444.Subsection (1) brings the cash equivalent of the car benefit into charge as part of the employee’s earnings. The rewrite of the source legislation has clarified the timing of the charge. See Note 7 in Annex 2.

445.Subsection (2) allows concise expression in this Chapter of the link between the employee and the taxable benefit.

Section 121: Method of calculating the cash equivalent of the benefit of a car

446.This section states how to calculate the cash equivalent of the car benefit. The section derives from sections 157(2) and 168G(1) and paragraph 1 of Schedule 6 to ICTA.

447.Subsection (1) sets out the steps involved in the calculation by using a method statement.

448.Subsection (2) gives signposts to two special cases when the calculation is modified.

449.Subsection (3) gives a signpost to the reduction that may be made when employees share a car.

Section 122: The price of the car

450.This section states what is meant by “the price of the car” and, in particular, introduces the concept of “the notional price” for the case where a car has no list price. It links to other provisions for the calculation of the cash equivalent of the car benefit. The section derives from part of section 168A(1) of ICTA.

Section 123: The list price of a car

451.This section deals with the most common case where there is a published list price for a car. The section derives from section 168A(2) and part of section 168A(9) of ICTA.

452.Subsection (1) defines “list price” by referring to the characteristics of an ordinary retail sale.

453.The phrase “(as the case may be)”, from section 168A(2), is retained as the simplest way of determining whose list price is to be taken. The user looks first to the manufacturer, secondly to the importer and thirdly to the distributor to find a list price.

454.Subsection (2) makes it clear that “list price” includes delivery charges and taxes.

Section 124: The notional price of a car with no list price

455.This section deals with the less common case where there is no published list price within section 123. The legislation then falls back on the concept of the “notional price”. The section derives from section 168A(8) and part of section 168A(9) of ICTA.

456.Subsection (1) defines the “notional price” of a car and the assumptions to be made in determining it. Those assumptions reflect the circumstances listed in section 123(1) where there is an actual list price.

457.Subsection (2) makes it clear that a notional price must, like a list price, include delivery charges and taxes.

Section 125: Meaning of “accessory” and related terms

458.This section defines “accessory”. The section derives from parts of sections 168A(9), (10) and (11), 168AB(1) and (4), 168B(8), 168C(3), 168D(5) and 168F(9) of ICTA.

459.Subsection (1) defines “qualifying accessory”.

460.Subsection (2) lists certain items that are not treated as accessories.

461.Subsection (3) states an exception to one item in subsection (2).

462.Subsection (4) distinguishes between a “standard accessory” and a “non-standard accessory”. The term “equivalent to” in the definition of “standard accessory” does not mean “identical to”. It accommodates slight changes to the specification of particular models of cars, which manufacturers may make from time to time but which do not result in changes to their published prices.

Section 126: Amounts taken into account in respect of accessories

463.This section identifies the types of accessories for which the prices are added at Step 2 of the calculation in section 121(1) of this Act. The section derives from parts of sections 168A(1), (4), (5), (6) and (7), 168B(1), (2) and (3), and 168C(1), (2) and (4) of ICTA.

464.Section 168A(3) of ICTA (which deals with a car to which only standard accessories were fitted at the time it was first made available to the employee) has not been rewritten. It seems unnecessary given that standard accessories (as defined in section 168A(9)(c)) are necessarily taken into account when ascertaining the list price of the car under section 168A(2). The structure of the new method statement in section 121 is such that, having ascertained the list price of the car under Step 1, Step 2 is only concerned with adding on the price of accessories not included in that price.

465.Subsection (1) states the basic rule and introduces the terms “initial extra accessory” and “later accessory”.

466.Subsection (2) defines “initial extra accessory”.

467.Subsection (3) defines “later accessory”.

468.Subsection (4) identifies the price of the accessory as the list price or, if there is no list price, a notional price. This follows the same approach as for the car in section 122 of this Act.

469.Subsection (5) gives a signpost to a modifying rule that applies when accessories are replaced.

Section 127: The list price of an accessory

470.This section defines the list price of an accessory. The section derives from parts of sections 168A(4), (5), (6) and (7), 168B(2) and 168C(2) of ICTA.

471.Subsection (1) gives the rule when the accessory is an “initial extra accessory”. The list price is the published price of either the manufacturer, importer or distributor of the car or, when there is no such published price, the published price of the manufacturer, importer or distributor of the accessory in a normal, retail sale.

472.Subsection (2) gives the rule when the accessory is a “later accessory”. The list price is the published price of the manufacturer, importer or distributor of the accessory.

Section 128: Accessory: published price of the car manufacturer etc.

473.This section states how to arrive at the price of an accessory, when it is derived from the published price of the manufacturer, importer or distributor of the car. The section derives from parts of section 168A(4) and (9) of ICTA.

474.Subsection (1) gives the main definition. As in section 123 of this Act (see paragraph 453) the phrase “(as the case may be)” from the source legislation is retained.

475.Subsection (2) defines “inclusive price”. Car tax is excluded from the “relevant taxes” to be taken into account in arriving at the price of the accessory in subsection (2)(b). That is because it is clear from the context of section 168A that, when applied to an accessory, the reference in section 168A(9) to “any car tax” is irrelevant when considering the “inclusive price” of the accessory as defined in section 168A(9)(a).

Section 129: Accessory: published price of the accessory manufacturer etc.

476.This section states how to arrive at the price of an accessory when it is derived from the published price of the manufacturer, importer or distributor of the accessory. The section derives from parts of section 168B(4), (6) and (7) and section 168C(4) of ICTA.

477.Subsection (1) defines the “published price of the manufacturer, importer or distributor of the accessory”. As in section 123 of this Act (see paragraph 453), the phrase “(as the case may be)” from the source legislation is retained.

478.Subsection (2) defines “inclusive price”. Car tax is excluded from the “relevant taxes” to be taken into account in arriving at the price of the accessory in subsection (2)(b). That reproduces the effect of section 168B(7)(b), which differs from section 168A(9) in that respect.

479.Subsection (2)(c) contrasts with section 128(2)(c) in identifying the person by whom the fitting charge is made. That reflects section 168B(6).

480.Subsection (3) states an interpretation rule for this section about timing. The reference to “time” here (and in subsection (1)(e) to which it relates) contrasts with the reference to “day” in section 128(1)(e). That reflects the distinction between section 168A(9)(b), which refers to “day” and section 168B(4), which refers to “time”. A brand new car is generally on sale prior to its first registration. The act of registration often results in an immediate loss in value. This is equally true of an optional accessory provided with the car by the car manufacturer. The legislation adopts the price of such an accessory in relation to the day immediately before first registration as it does for the car itself (see section 123(1)(e) of this Act). In the case of an accessory that is made by someone other than the car manufacturer that may not be appropriate. That is because the accessory might be attached to the car only on the first day the accessory goes on sale. So this section refers to a particular time rather than a particular day.

Section 130: The notional price of an accessory

481.This section defines the “notional price” of an accessory. It applies when an accessory does not have a list price. The section derives from section 168B(5), (6) and (7) and section 168C(4) of ICTA.

482.Subsection (1) defines the notional price of the accessory by setting out the assumptions to be made in determining it. Those assumptions reflect the circumstances listed in section 129(1) where there is an actual list price.

483.Subsection (2) defines “inclusive price” to reflect what is referred to in section 129(2) when there is an actual list price.

484.Subsection (2)(c) follows section 129(2)(c) in identifying the person by whom the fitting charge is made. That reflects section 168B(6).

485.Subsection (3) follows the timing rule in section 129(3).

Section 131: Replacement accessories

486.This section sets out the rules for calculating the cash equivalent of a replacement accessory. The section derives from the Income Tax (Car Benefits) (Replacement Accessories) Regulations 1994 (SI 1994 No 777). Those Regulations were made under powers provided by section 168E of ICTA. As there is no longer any reason to retain those powers, section 168E has not been rewritten.

487.Subsection (1) states when the section applies.

488.Subsection (2) applies when the new accessory is not superior to the old accessory.

489.Subsection (3) applies when the new accessory is superior to the old accessory and the conditions in subsection (4) are met.

490.Subsection (4) states the conditions referred to in subsection (3).

491.Subsection (5) states what is meant by “superior” in this section.

492.Subsection (6) states what is meant by the “price of an accessory” in this section.

Section 132: Capital contributions by employee

493.This section provides for the deduction that can be made at Step 3 of section 121(1) of this Act in calculating the cash equivalent of the car benefit. The section derives from section 168D(1), (2), (3) and (4) of ICTA.

494.Subsection (1) states when the section applies. That is when the employee contributes to the capital cost of the car or its qualifying accessories.

495.Subsection (2) states for which tax years the deduction can be made.

496.Subsection (3) states the maximum deduction that can be made under this section for any tax year.

Section 133: How to determine the “appropriate percentage”

497.This section is the first of a group of ten defining “the appropriate percentage” to be used in Step 6 of section 121(1) of this Act to calculate the cash equivalent of the car benefit. The “appropriate percentage” depends on the type of car involved, when it was first registered, what fuel or fuels it uses and whether it has a CO2 emissions figure. The section derives from paragraph 2 of Schedule 6 to ICTA.

498.Subsection (1) identifies the date of the car’s first registration as the initial governing factor.

499.Subsection (2) applies different provisions to cars first registered after 31 December 1997, depending on whether or not they have a CO2 emissions figure and/or whether they are diesels. It gives signposts to the relevant provisions in each case.

500.Subsection (3) gives a signpost to the provision that applies if the car was first registered before 1 January 1998.

Section 134: Meaning of car with or without a CO2 emissions figure

501.This section determines whether a car is a car with or without a CO2 emissions figure for the purposes of these provisions. The section derives from parts of paragraphs 3(1) and (2), 5 and 5C(1) of Schedule 6 to ICTA.

502.Subsection (1) defines a “car with a CO2 emissions figure” by reference to its date of first registration and other sections that specify a CO2 emissions figure for the particular combination of car type and date of first registration.

503.Subsection (2) defines a “car without a CO2 emissions figure” by reference to its date of first registration, not being a car within subsection (1).

Section 135: Car with a CO2 emissions figure: pre-October 1999 registration

504.This section gives a rule to determine the CO2 emissions figure for certain cars first registered after 31 December 1997 and before 1 October 1999. The section derives from parts of paragraph 3(1) and (2) of Schedule 6 to ICTA.

505.Subsections (1) and (2) define a CO2 emissions figure by reference to the appropriate European or United Kingdom certification schemes that were in place at the time of a first registration that occurred on or after 1 January 1998 and before 1 October 1999.

506.Subsection (3) makes this section subject to a further rule that applies to the provision of an automatic car for an employee who is disabled.

Section 136: Car with a CO2 emissions figure: post-September 1999 registration

507.This section gives a rule to determine the CO2 emissions figure for certain cars first registered after 30 September 1999. The section derives from parts of paragraph 3(1) and (2) of Schedule 6 to ICTA.

508.Subsections (1) and (2) define the CO2 emissions figure by reference to the appropriate European or United Kingdom certification schemes that were in place at the time of a first registration on or after 1 October 1999.

509.Subsection (3) makes this section subject to further rules that apply to the provision of a car capable of running on more than one type of fuel or of an automatic car for an employee who is disabled.

Section 137: Car with a CO2 emissions figure: bi-fuel cars

510.This section gives a CO2 emissions figure for bi-fuel cars (cars capable of running on more than one type of fuel) first registered after 31 December 1999. Such cars will have at least two CO2 emissions figures. The section derives from paragraph 5 of Schedule 6 to ICTA.

511.Subsection (1) refers to the CO2 emissions figures of a bi-fuel car by reference to the appropriate European or United Kingdom certification schemes that were in place at the time of a first registration after 31 December 1999.

512.Subsection (2) determines which figure must be used.

513.Subsection (3) makes this section subject to a further rule that applies to the provision of an automatic car for an employee who is disabled.

Section 138: Car with a CO2 emissions figure: automatic car for a disabled employee

514.This section gives a special rule for identifying the CO2 emissions figure for an automatic car provided for a disabled employee. The section derives from paragraph 5A(1), (2), (3) and (4) of Schedule 6 to ICTA.

515.The CO2 emissions figure for an automatic car is generally higher than for its manual equivalent. So as not to penalise a disabled employee whose disablement means that the car he or she drives must have an automatic gearbox, this section provides that the CO2 emissions figure to be used is that of the nearest equivalent manual version of the car.

516.Subsection (1) states when the section applies. This subsection refers to the employee as “E” to avoid repeated use of the word “employee”.

517.Subsection (2) provides for the substitution of the CO2 emissions figure of the manual equivalent of the automatic car if it is lower.

518.Subsection (3) defines “equivalent manual car”.

519.Subsection (4) defines a car with automatic transmission. This subsection incorporates a suggestion made during the process of consultation leading up to this Act. The definition turns on the central idea that an automatic car is a car that does not have a clutch needing to be operated by some physical action by the driver.

520.Subsection (5) avoids the use of the phrase “the employee’s employment”. This provision contrasts with section 116(1) of this Act in that it only applies to a car made available to the employee personally and not to members of the employee’s family or household.

Section 139: Car with a CO2 emissions figure: the appropriate percentage

521.This section identifies the “appropriate percentage” to be used at Step 6 in section 121(1) of this Act to calculate the cash equivalent for a car that has a CO2 emissions figure. The section derives from paragraphs 3(3), (4) and (5), and 4(1) and (3) of Schedule 6 to ICTA.

522.Subsection (1) states the starting point for arriving at the appropriate percentage, which is the car’s CO2 emissions figure.

523.Subsection (2) gives the appropriate percentage if the car’s CO2 emissions figure is no higher than “the lower threshold”. This is the “basic percentage”, initially set at 15%.

524.Subsection (3) gives the appropriate percentage if the car’s CO2 emissions figure is higher than “the lower threshold”. The basic percentage is increased by one percentage point for each additional (full) five grams per kilometre of CO2 emitted, up to a maximum appropriate percentage of 35%. The reference in paragraph 3(4) to “the basic percentage increased by 1%” is rewritten as “the basic percentage increased by one percentage point”. That makes the intention of the legislation clearer, as it avoids any suggestion that the “minimum percentage” must be increased by 1% of itself (to 15.15%).

525.Subsection (4) states what is “the lower threshold” for different tax years.

526.Subsection (5) provides for the rounding down of the car’s CO2 emissions figure to the nearest multiple of five. Its effect is that the basic percentage is increased under subsection (3)(a) by one percentage point only for every additional full five grams per kilometre of CO2 emitted.

527.Subsection (6) makes the section subject to other provisions relating to diesel cars and to Treasury powers to amend the amounts involved.

Section 140: Car without a CO2 emissions figure: the appropriate percentage

528.This section gives the “appropriate percentage” to be used at Step 6 in section 121(1) of this Act to calculate the cash equivalent for a car first registered after 31 December 1997 that does not, for whatever reason, have a CO2 emissions figure. The section derives from paragraphs 5C(2), (3) and (4) and 5G of Schedule 6 to ICTA.

529.Subsection (1) applies the section to determine the appropriate percentage for cars without a CO2 emissions figure. They include, for example, electrically propelled cars and cars with an internal combustion engine that does not have one reciprocating piston or more.

530.Subsection (2) applies to cars with an internal combustion engine that does have one reciprocating piston or more. The appropriate percentage increases with engine size.

531.Subsection (3) gives the appropriate percentage for cars not within subsection (2).

532.Subsection (4) defines an “electrically propelled vehicle” for the purposes of this section.

533.Subsection (5) makes the section subject to other provisions relating to diesel cars and to any regulations made under Treasury powers to amend the amounts involved.

Section 141: Diesel cars: the appropriate percentage

534.This section gives the “appropriate percentage” to be used at Step 6 in section 121(1) to calculate the cash equivalent for a diesel car. The section derives from paragraph 5D(1), (2) and (4) of Schedule 6 to ICTA.

535.Subsection (1) states to which cars the section applies, namely diesel cars first registered after 31 December 1997.

536.Subsection (2) uses a method statement to set out the steps in the calculation of the appropriate percentage.

537.Subsection (3) defines “diesel car” for the purposes of this section.

538.Subsection (4) makes the section subject to any regulations made under Treasury powers to amend the amounts involved.

Section 142: Car first registered before 1st January 1998: the appropriate percentage

539.This section gives the “appropriate percentage” to be used at Step 6 in section 121(1) of this Act to calculate the cash equivalent for a car registered before 1 January 1998. Such cars are less likely to have a recognised CO2 emissions figure, so a different and consistent basis is used for all such cars. The section derives from paragraphs 5F(1), (2) and (3) and 5G of Schedule 6 to ICTA.

540.Subsection (1) states to which cars the section applies, namely those first registered before 1 January 1998.

541.Subsection (2) applies to cars with an internal combustion engine that has one reciprocating piston or more. The appropriate percentage increases with engine size. For cars driven by an internal combustion engine with one reciprocating piston or more the “appropriate percentage” is the same, irrespective of the fuel used.

542.Subsection (3) gives the appropriate percentage for cars not within subsection (2).

543.Subsection (4) defines an “electrically propelled vehicle” for the purposes of this section.

Section 143: Deduction for periods when car unavailable

544.This section quantifies a deduction that can be made at Step 7 of section 121(1) of this Act in calculating the cash equivalent, because a car is not available at some time during the tax year. The section derives from part of paragraph 6 and paragraph 9 of Schedule 6 to ICTA.

545.Subsection (1) provides for the deduction.

546.Subsection (2) defines the periods of non-availability. They cover the period from the beginning of the tax year involved to the date on which the car first became available and the period from the date when the car ceased permanently to be available to the end of the tax year. There can also be one or more periods of temporary non-availability for each period of continuous non-availability of 30 days or more. Such periods can span two tax years, ie the 30 days or more do not have to fall wholly within one tax year.

547.Subsection (3) gives a formula to calculate the appropriate deduction.

548.Subsection (4) makes this section subject to a further provision that applies if the car is temporarily replaced.

Section 144: Deduction for payments for private use

549.This section provides for a deduction to be made in calculating the cash equivalent at Step 8 of section 121(1) of this Act, to take account of the employee having paid for private use of the car. The section derives from paragraph 7 of Schedule 6 to ICTA.

550.Subsection (1) states when the section applies. That is when, as a condition of the car being made available for private use, the employee is required to pay, and does pay, for that private use.

551.The words “(whether by way of deduction from earnings or otherwise)” have been retained as they remove a potential area of doubt about whether a deduction from earnings can amount to a payment. The same approach is used in sections 159(1)(a) and 165(1)(a) of this Act.

552.Subsections (2) and (3) provide for the deduction of the appropriate amount at Step 8 of the calculation in section 121(1).

553.Subsection (4) extends the section to private use of a car by a member of the employee’s family or household.

554.Subsection (5) makes this section subject to a further provision that applies if the car is temporarily replaced.

Section 145: Modification of provisions where car temporarily replaced

555.This section modifies the effect of the two previous sections if a car is temporarily replaced. The section derives from the Income Tax (Replacement Cars) Regulations 1994 (SI 1994 No 778). Those Regulations were made under powers provided by paragraph 8 of Schedule 6 to ICTA. As there is no longer any reason to retain those powers, that paragraph has not been rewritten.

556.Subsections (1) to (3) deal with the conditions to be met for the section to apply. Condition A in subsection (2) relates to the quality of the replacement car as compared with the car it replaces. This Act uses a slightly different form of wording from the source legislation. See Change 25 in Annex 1.

557.Subsection (4) makes the necessary modifications to sections 143 and 144 of this Act when this section applies.

558.Subsection (5) defines “materially better”. The possible introduction of a numerical measure of improvement (a maximum percentage increase above the interim sum, for example) to remove the inherent uncertainty of “materially” was considered but rejected. That approach might produce “hard cases”. It is better to retain the flexibility that a common sense interpretation of “materially” allows.

Section 146: Cars that run on road fuel gas

559.This section provides for a deduction to be made from the price of the car at Step 1 of the calculation of the cash equivalent in section 121(1) of this Act if the car has been manufactured to run on road fuel gas and is not a bi-fuel car. The deduction that can be made is the amount that is reasonably attributable to the car being manufactured to run on road fuel gas, rather than only on petrol. The section derives from section 168AB(2) and (4) of ICTA.

560.Subsection (1) states when the section applies.

561.Subsection (2) provides for the appropriate deduction from the price arrived at after Step 1 of the calculation in section 121(1). This is a slight variation on the calculation used in the source legislation. See Change 26 in Annex 1.

Section 147: Classic cars: 15 years of age or more

562.This section provides for modifications to the calculation of the cash equivalent of the car benefit in section 121(1) of this Act if the car is a classic car. The section derives from section 168F(1) to (8) of ICTA.

563.The section heading emphasises that the provision applies to modern classics as well as to vintage or veteran cars.

564.Subsection (1) states when the section applies by reference to the age and market value of the car. A car that is 15 or more years old, with a market value of £15,000 or more and in excess of the amount carried forward from Step 3 of the “normal” calculation in section 121(1) falls within this provision.

565.Subsection (2) applies the modification provided for in this section to the calculation in section 121(1). This is the substitution of the market value (after adjustment for any capital contributions by the employee) of the car on the last day of the tax year involved (or the last day the car is available to the employee in that year, if earlier) for the amount arrived at after Step 3 under the normal calculation method.

566.Subsections (3) and (4) define the market value of the car.

567.Subsections (5) to (7) provide for a deduction (limited to £5,000 in any tax year) from the market value to reflect any capital contributions by the employee.

Section 148: Reduction of cash equivalent where car is shared

568.This section provides for a reduction of the cash equivalent of the benefit of a car where that car is shared by at least two employees who are chargeable to tax in respect of its availability. This section derives from paragraph 3 of ESC A71.

569.The concession was couched in terms of the apportionment of “a single car benefit charge”. This Act adopts a different approach by providing for a reduction of the relevant cash equivalent for each employee to whom the section applies. See item B of Change 27 in Annex 1.

570.This section, by virtue of the provisions in section 5, applies to office-holders as well as employees. See item D of Change 27 in Annex 1.

571.Subsection (1) states when the section applies. That is when two or more employees are chargeable to tax in respect of the provision of the car (of which they each have shared private use) by their employer. No reduction will be necessary if the car is shared between one such an employee and another employee who is not chargeable in respect of the provision of the car. That is because there will be only one cash equivalent arising from the provision of the car.

572.Converting the concession to legislation has produced a subtle change to how section 218 of this Act (which determines whether an employee is lower-paid) will apply, compared with how the source legislation in section 167(2) of ICTA worked with the concession. See item C of Change 27 in Annex 1.

573.Subsection (2) provides for the reduction of each employee’s cash equivalent of the car benefit, initially calculated ignoring the fact that the car is shared, on a just and reasonable basis. See item B in Change 27 in Annex 1.

574.Subsection (3) modifies how subsection (2) is to be interpreted.

575.Subsection (4) extends the section to cover private use of a car by a member of the employee’s family or household.

Section 149: Benefit of car fuel treated as earnings

576.This section brings into charge, as an employee’s earnings, the cash equivalent of the benefit arising from the provision of fuel for a car to which section 120 of this Act applies. The section derives from section 158(1), (9) and part of (3) of ICTA.

577.Subsection (1) states the main principle, which is that any fuel benefit associated with a car benefit is taxed as earnings. The rewrite of the source legislation has clarified the timing of the charge. See Note 7 in Annex 2.

578.Subsection (1)(b) now refers to “that person”, rather than “the employee” to avoid a repetitive reference to “the employee” that might have been regarded as indicating that the car must have been made available by reason of the same employment as that providing the car fuel. There is no such stipulation on the face of section 158(1) of ICTA.

579.Subsection (2) applies the provisions that determine how the cash equivalent of the fuel benefit is calculated.

580.Subsection (3) gives examples of what constitutes the provision of fuel. The definitions of “non-cash voucher” and “credit-token” used in subsection (3)(b) and (3)(c) are listed in Schedule 1 to this Act.

581.Subsection (4) excludes the provision of electrical energy from the benefit charge.

Section 150: Car fuel: calculating the cash equivalent

582.This section defines the cash equivalent of the benefit of the provision of car fuel. The section derives from section 158(2) of ICTA.

583.Subsection (1) gives the basis of calculation, which is to take the “appropriate percentage” of £14,400.

584.Subsection (2) states the meaning of “appropriate percentage” in this section. That is the same percentage as is used to calculate the cash equivalent of the car for which the fuel is provided.

585.Subsection (3) gives signposts to three sections that modify the cash equivalent in particular circumstances.

Section 151: Car fuel: nil cash equivalent

586.This section prevents a benefits charge when there is no private use of fuel or the employee pays for the private use. The section derives from section 158(6) of ICTA.

587.Subsection (1) provides that the cash equivalent will be nil if either of the conditions defined in subsections (2) or (3) is met.

588.Subsection (2) applies to cases where the employee is required to pay for, and does pay for, all fuel for private use.

589.Subsection (3) applies when fuel is provided only for business travel.

Section 152: Car fuel: proportionate reduction of cash equivalent

590.This section provides for a proportionate reduction in the cash equivalent of the fuel benefit for particular circumstances, which may apply during part of a tax year. This section derives from section 158(5), (6A), (6B), and (8) of ICTA.

591.Subsection (1) applies when the car for which the fuel is provided is unavailable.

592.Subsection (2) covers circumstances where the fuel is not available for private use or its cost has to be and is reimbursed by the employee.

593.Subsection (3) is to prevent unintended advantage being obtained from the legislation by repeated changes in the circumstances that apply to the provision of the fuel.

594.Subsection (4) gives a formula to calculate the reduced cash equivalent. The formula uses “Y”, defined as “the number of days in the tax year in question”, instead of the fixed figure of “365” in the source legislation. That copes automatically with leap years. See item A of Change 28 in Annex 1.

Section 153: Car fuel: reduction of cash equivalent

595.This section provides for a reduction of the cash equivalent of the fuel benefit in certain circumstances when a car is shared. The section is new. It is an extension of the change referred to in paragraph 569. See items B and D of Change 27 in Annex 1.

Section 154: Benefit of van treated as earnings

596.This section states the principle that the cash equivalent of the benefit arising from the provision of a van is treated as the employee’s earnings from the employment. The section reflects the approach in section 120 of this Act, the corresponding section for cars. The section derives from section 159AA(1) of ICTA. The rewrite of the source legislation has clarified the timing of the charge. See Note 7 in Annex 2. See also item A of Change 2 in Annex 1 in relation to when the earnings are treated as received.

Section 155: Method of calculating the cash equivalent of the benefit of a van

597.This section states the principles involved in calculating the cash equivalent of the benefit of a van. The section derives from paragraphs 1(1), 4(1) and 5(6) and (10) of Schedule 6A to ICTA.

598.Subsection (1) states the starting point of the calculation. That is whether or not the van is shared at any time in the tax year.

599.Subsection (2) identifies the provision that contains the basis of calculation that applies if the van was not a shared van, as defined in section 156 of this Act, for any period in the tax year.

600.Subsection (3) identifies the provision that contains the basis of calculation that applies if the van was a shared van, as defined in section 156, for the whole of the tax year.

601.Subsection (4) applies when the van is shared for only part of the year, and simplifies the proposition set out in the source legislation. See item C of Note 17 in Annex 2.

602.Subsections (5) and (6) make it clear which vans are counted in the calculation of the value of shared availability under, respectively, the normal and alternative methods of calculation.

603.Subsection (7) states the rule for calculating the total value of shared availability when an employee shares more than one van.

604.Subsection (8) gives a signpost to a section that imposes an overall limit on the cash equivalent of the benefit arising from the provision of a van or vans.

Section 156: Meaning of “shared van”

605.This section defines the term “shared van”. The section derives from paragraph 4(2), (3), (4) and (5) of Schedule 6A to ICTA.

606.Subsections (1) to (3) determine, for the purposes of sections 155 to 165 of this Act, whether a van is a “shared van”. Subsection (3)(a) emphasises, by its reference to “different employees”, that it denotes a group of employees that may vary over the period.

607.Subsection (4) provides that if a van is available to only one employee for a period of 30 days or more the van will not count as a “shared van” for that period.

608.Subsection (5) requires shared use for any part of a day to be counted as shared use for that day.

Section 157: Value of exclusive availability

609.This section gives the value of the benefit of a van that is available to only one employee. It sets out the steps involved in the calculation using a method statement. The section derives from paragraph 1(2) and parts of paragraphs 2(1) and 3(1) of Schedule 6A to ICTA.

Section 158: Deduction for periods of unavailability or shared use

610.This section provides for an adjustment of the value calculated under section 157 if the van is not available or is shared for any period in the tax year. The section derives from parts of paragraph 2(1) and from paragraph 2(2) and (3) of Schedule 6A to ICTA.

611.Subsection (1) provides for a deduction to be made from the value calculated at Step 2 of section 157 when there are “excluded days” in relation to the van.

612.Subsection (2) defines “excluded days” as days when the van is unavailable or shared.

613.Subsection (3) gives a formula to calculate the deduction. The formula uses “Y” for the number of days in the year instead of “365” in the source legislation. This is the same change in principle as that described in paragraph 594. See item A of Change 28 in Annex 1.

614.Subsection (4) defines the periods of non-availability. Apart from periods relating to the van first being available or ceasing finally to be available, such periods must last for a continuous period of at least 30 days. They can run from the beginning of the tax year involved to the date on which the van first became available or from the date when the van ceased permanently to be available to the end of that tax year. There can also be one or more periods of temporary non-availability for each continuous period of 30 days or more. Such periods can span two tax years, ie the period of 30 days or more does not have to fall wholly within one tax year.

Section 159: Deduction for payments for private use

615.This section provides for adjustment of the value calculated under section 157 of this Act for payments made by the employee for private use of a van. The section derives from paragraph 3(1), (2) and (3) of Schedule 6A to ICTA.

616.Subsection (1) states when the section applies. That is when, as a condition of the van being made available for private use, the employee is required to pay for, and does pay for, that use. The words “(whether by way of deduction from earnings or otherwise)” avoid any doubt about whether a deduction from earnings can amount to a payment. The same approach is used in sections 144(1)(a) and 165(1)(a) of this Act.

617.Subsections (2) and (3) provide for the deduction of the appropriate amount at Step 4 of the calculation in section 157.

618.Subsection (4) specifies that for cases where the van is shared for part of the tax year, the deduction relates to the period(s) when it is not shared.

619.Subsection (5) extends the section to private use of a van by a member of the employee’s family or household.

Section 160: Value of shared availability

620.This section introduces the two methods of calculating the value of shared availability, the second of which has to be claimed by the employee. This section is new.

Section 161: Value of shared availability: normal calculation

621.This section gives the normal rule used to calculate the value of the shared availability of one or more vans. The section derives from paragraphs 5(1), (4) and (5), 7 and part of paragraph 9(1) of Schedule 6A to ICTA.

622.Subsection (1) sets out the steps involved in the calculation using a method statement. This is the calculation that applies if the employee does not claim the alternative calculation under section 164 of this Act.

623.The words in parentheses in Step 1 make it clear that “made available by the same employer” means made available to any of the participating employees, whether or not including the one whose liability is being calculated.

624.The second sentence at the end of Step 2 states explicitly what was formerly implicit. See item B of Note 17 in Annex 2.

625.Subsection (2) focuses primarily on the employee whose tax liability is being calculated, rather than on all the shared vans and all the participating employees in relation to those vans. See item A of Note 17 in Annex 2.

Section 162: Shared van: meaning of “participating employee”

626.This section defines the term “participating employee”, which is used in section 161. The section derives from paragraph 5(2) and (3) of Schedule 6A to ICTA.

627.Subsection (1) applies when only one van is involved.

628.Subsection (2) applies when more than one van is involved.

629.Subsection (3)(a) and (b) extends the section to private use of a van by a member of the employee’s family or household.

Section 163: Shared van: basic value

630.This section provides for the calculation of the basic value of a shared van. The section derives from paragraph 6(1), (2), (3) and (4) of Schedule 6A to ICTA.

631.Subsection (1) sets out the steps involved in the calculation using a method statement. The value that is calculated is applied at Step 4 of section 161 of this Act.

632.In subsection (1) the formula at Step 3 provides for adjustments to the basic value for periods when the van was not a shared van and for any period of 30 days or more when it was incapable of use. The formula uses “Y” for the number of days in the year instead of “365” in the source legislation. This is the same change in principle as that described in paragraph 594. See item A of Change 28 in Annex 1.

633.Subsections (2) and (3) identify the days that must be excluded at Step 3.

Section 164: Value of shared availability: alternative calculation

634.This section provides for an alternative way to calculate the value of the shared availability of a van. The section derives from paragraph 8(2), (3) and (4) and parts of paragraph 8(1) and 9(1) of Schedule 6A to ICTA. Paragraph 8(1)(a) of Schedule 6A to ICTA has not been rewritten, as it is no longer necessary.

635.Subsection (1) applies the section only when an employee makes a claim for it to apply instead of section 161 of this Act (value of shared availability: normal calculation).

636.Subsection (2) sets out the steps involved in the calculation using a method statement. Step 1 (b) excludes vans other than vans made available to the employee and the employee’s family or household. That is because subsection (3)(b) defines relevant days, an essential part of the calculation, by reference only to vans made use of privately by the employee or a member of the employee’s family or household.

637.Subsection (3) identifies the days that must be counted in the formula at Step 3 of subsection (2).

638.Subsection (4) provides that a claim under this section is treated under section 95 of TMA 1970 as a claim for relief. Section 42 of TMA 1970 applies to this claim.

Section 165: Deduction for payments for private use

639.This section provides for an adjustment to the value of the shared van availability to take account of payments the employee makes for the private use of a shared van. The section derives from paragraph 9(2) and (3) and part of paragraph 9(1) of Schedule 6A to ICTA.

640.Subsection (1) provides that a deduction is to be made in the calculations in section 161 or section 164 of this Act if the employee is required to pay, and does pay, for private use. The words “(whether by way of deduction from earnings or otherwise)” avoid any doubt about whether a deduction from earnings can amount to a payment. This follows the approach that is used in sections 144(1)(a) and 159(1)(a) of this Act.

641.Subsections (2) to (4) state how to calculate the deduction. The wording of these subsections closely follows that of the source legislation. The possible argument that subsection (4) operates to prevent any deduction at all where a global sum is paid for private use of any of the vans was considered. Such a restrictive interpretation would be unreasonable. It is better not to complicate further these already complex provisions by seeking to address this subtle point. It can be dealt with using the “care and management” provisions in section 1 of TMA 1970.

642.Subsection (5) extends the section to private use by a member of the employee’s family or household.

Section 166: Vans: limit of cash equivalent

643.This section sets a maximum cash equivalent on an employee’s van benefit for a tax year, in particular circumstances. The section derives from paragraph 11 of Schedule 6A to ICTA.

644.The limit applies only if no more than one van is available, for private use, to the employee or the employee’s family or household at any one time in the tax year.

Section 167: Pooled cars

645.This section determines how pooled cars are treated under the benefits provisions. The section derives from section 159(1), (2) and (3) of ICTA.

646.Subsection (1) applies the provisions to a car that is a pooled car.

647.Subsection (2) treats pooled cars as not having been available for private use of any of the employees concerned. It also prevents them from being treated as an employment-related benefit for the purposes of Chapter 10 of Part 3 of this Act. See Note 18 in Annex 2.

648.Subsection (3) sets out the conditions for a car to be treated as a pooled car.

649.Subsection (3)(b) uses the term “the employee’s employment”. Generally use of that term has been avoided but here it helps clarity.

Section 168: Pooled vans

650.This section determines how pooled vans are treated under the benefits provisions. This section works in relation to vans as section 167 works in relation to cars. This section derives from section 159AB of ICTA.

651.Subsection (1) applies the provisions to a van that is a pooled van.

652.Subsection (2) treats pooled vans as not having been available for private use of any of the employees concerned. It also prevents them from being treated as an employment-related benefit for the purposes of Chapter 10 of Part 3 of this Act. See Note 18 in Annex 2.

653.Subsection (3) sets out the conditions for a van to be treated as a pooled van.

654.Subsection (3)(b) uses the term “the employee’s employment”. Generally use of that term has been avoided but here it helps clarity.

Section 169: Car available to more than one member of family or household employed by same employer

655.This section removes a car or car fuel benefit charge on an employee who would otherwise be taxed on the car benefits relating to a member of his or her family or household. The section derives from paragraphs 1 and 2 of ESC A71. See items A and D of Change 27 in Annex 1.

656.Subsection (1) states the circumstances in which the section can apply.

657.Subsection (2) removes the tax charge on the employee in two specified cases.

658.Subsection (2)(a) specifies the first case, which is when the family or household member is chargeable on the benefit in his or her own right.

659.Subsections (2)(b)(3) and (4) specify the second case, which is when the family or household member is not chargeable on the benefit in his or her own right and the car is provided for reasons that do not arise out of the family or household relationship.

Section 170: Orders etc. relating to this Chapter

660.This section provides the Treasury with powers to make regulations affecting the legislation in this Chapter. It brings together various provisions from various individual sections dealing with different aspects of car and van benefit charges in the source legislation. The section derives from sections 158(4), 168C(5), 168D(6), 168F(11) and 168G(2) of ICTA and from paragraphs 4(2) and 5E of Schedule 6 to ICTA.

661.The wording of subsection (2) has not been aligned with subsection (6). The section accurately reproduces the legislation from which it derives and further internal alignment could, in certain cases, work against the taxpayer’s interests, as for example in section 132(3)(b) and section 147(1)(b) of this Act.

Section 171: Minor definitions: general

662.This section gives definitions of terms that are used widely in this Chapter. The section derives from parts of sections 168(5) and (5A), 168A(9), 168AA(3), and 168AB(3) of ICTA and from paragraphs 5A(5), 5B and 5D(3) of Schedule 6 to ICTA.

Section 172: Minor definitions: equipment to enable a disabled person to use a car

663.This section brings together the definitions that relate specifically to a car available for use by a disabled person. The section derives from section 168AA(1) and (2) of ICTA.

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