Payroll Tips - Calculating the tax charges when two employees share a company car

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How are car and fuel benefit charges calculated when a company car is made available for the use of two employees? Assuming they are both earning at a rate of £;8,500 or more, there is certainly a liability for both a car and fuel benefit charge, under the provisions of sections 120 and 149 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The car and fuel benefit charges cannot be calculated by simply splitting the charges for one car between the two employees. The car charge may relate to circumstances relevant to each employee, such as capital contributions and 'private use' contributions, and that could create a different car benefit charge for each of the employees sharing the car. One of the employees could, as a result, benefit from the circumstances relating to one of the other employees. Section 148 of ITEPA overcomes this problem by defining a requirement for a full car benefit charge to be calculated, initially, for each employee sharing the car. The individual charges are then reduced "on a just and reasonable basis", rather than being apportioned. Which factors should be taken into consideration in performing this reduction are not defined but, for example, they might include the number of days that each employee had private use of the car, and the payment of any capital or private use contributions. It is likely that, in the event of an audit, a tax inspector would expect to see the details of how the reductions were performed. It should be noted, however, that, if one of the employees sharing the car is a "lower-paid employee", for whom the provision of the car does not create a car benefit charge, the use of the car by that employee may not be used to reduce the charge for the other employee(s). As provided for in section 153 of ITEPA, if the car benefit charge for an employee is reduced in this way and the employee is also liable for a fuel benefit charge, a corresponding reduction is also made to that charge. Discuss this news item in the PayPerShop Forum ...back to 7 April 2005

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