EIM44060 | Optional remuneration arrangements: cars with CO2 emissions of 75 grams or less per kilometre

Section 120A 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arrangements in which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn.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.

The optional remuneration arrangement rules do not apply to cars with CO2 emissions of 75 grams or less per kilometre. Cars with CO2 emissions of 75 grams or less per kilometre continue to be taxed on the cash equivalent of the benefit without having to make a comparison with the salary foregone.

Example

An employee is provided with a low emission car which is available for their private use under an optional remuneration arrangement in which the employee gives up £125 per month (the amount forgone). The car has CO2 emissions of 70 grams per kilometre.

The car has a list price of £11,500 and a cash equivalent value of £1,495 (£11,500 × 13%).

Although the £1,500 (£125 x 12) which is the amount foregone by the employee exceeds the cash equivalent value of the benefit of the car, the optional remuneration arrangement rules do not apply to low emission cars. The relevant amount to treat as earnings remains at £1,495.