EIM44080 - Optional remuneration arrangements: car fuel made available for private use

Section 149A ITEPA 2003

From 6 April 2017, the Income Tax and NICs advantages where benefits are provided through arrangements in which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

Transitional provisions apply for a limited period. For further details see EIM44030.

Certain benefits in kind are excluded from the changes. For further details see EIM44130.

Where fuel for a car is made available to an employee who is chargeable to tax in respect of a car under an optional remuneration agreement, the relevant amount to treat as earnings from the employment is the greater of:

• the cash equivalent of the benefit of the fuel, and
• the amount foregone with respect to the benefit of the fuel

Where a number of separate benefits are provided to an employee in conjunction with optional remuneration arrangements, usually the employer and the employee will be well aware of the value of the salary or cash given up for each respective benefit and the employer should be able to report the appropriate value. However, where the amount given up for each benefit is not separately identified the value should be apportioned on a just and reasonable basis taking into account the facts and circumstances, as long as the total equals the total of the amount foregone.

No deduction is given from the relevant amount in respect of the fuel benefit for any private use payments.

Example

An employee has a car, with an appropriate percentage of 20%, made available to him for the whole of the tax year 2017 to 2018. The employee also enters into an optional remuneration arrangement with his employer under which he gives up a £400 per month cash allowance offered by his employer in return for car fuel. The £400 is calculated at the start of the employee’s arrangement to reflect an expected average annual mileage of 35,000.

The cash equivalent of the benefit of the fuel is £4,520 (the fixed fuel benefit chare multiplier amount of £22,600 multiplied by the appropriate percentage of 20%). The cash allowance foregone of £4,800 (£400 × 12) is the relevant amount to treat as earnings.