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If you're offering a company car to an employee, you must accurately report it for tax purposes. Various things must be reported, such as company cars used for private travel, fuel for these trips and volunteer work.
The benefit value of the car is calculated as follows:
The list price of the car ➕ Cost of any accessories added when the car was first acquired ➕ Replacement accessories costing at least £100 ➖ Capital contribution made by the employee (up to a maximum value of £5k)
The appropriate percentage, as determined by HMRC (link below)
This gives you the annual benefit value of the car (the cash equivalent)
💡Work out the appropriate percentage for company car benefits (480: Appendix 2)
What is an Optional Remuneration Arrangement (OpRA)?
There are two types of Operational Remuneration Arrangements, known as OpRA.
Type A Arrangement = the employee gives up the right, or the future right, to receive an amount of earnings (for example, salary) which would be chargeable to tax under Section 62 ITEPA 2003 in return for the benefit.
Type B Arrangement = the employee agrees to be provided with a benefit rather than an amount of earnings (for example, the option of a cash allowance).
Where an employee receives a benefit rather than some form of salary, the value on which tax is paid is the higher of the amount of salary given up or the value of the benefit.
What does this look like in practice? An employee has a company car, which was provided under an OpRA arrangement, where they gave up £350 of their salary per month.
The cash equivalent value of the car is £4,000.
The amount foregone (the salary they gave up under the OpRA arrangement) is £4,200.
The amount foregone is the higher of the two values; therefore, the employee should pay tax on the higher amount.
What CO2 value to use for electric vehicles?
The approved CO2 emission figure should be available in the vehicle log book or from the company that leased the car.
It may be that a fully electric car has no CO2 emissions, and in this instance, you would enter 0 in the approved CO2 emissions field.
What counts as an accessory? A qualifying accessory is made available for use with the car without any transfer of the property in the accessory, made available by reason of the employee's employment or is attached to the car.
Examples of accessories could include but are not limited to metallic paint, a roof rack or a Bluetooth device.
More information on accessories can be found on this website: How to work out the benefit of a company car (480: Chapter 12) - GOV.UK (www.gov.uk)
- Availability: Whenever a car isn't available to an employee for 30 or more consecutive days, they should not be charged any benefit for those days. To put it simply, if they didn't have access to the car when they were supposed to be able to use it, then it is classed as 'unavailable'.
- Private use contributions made by the employee: You also need to account for any private use contributions made by the employee, as these contributions out of their net pay towards the private use of the vehicle will reduce the cash equivalent value.
- When reporting cars to HMRC, you need to collect additional information such as the car's make, model and registration date, and information about the CO2 emissions, fuel type, engine size and electric mile range.
💡Examples of payments towards private use
A benefit arises when any fuel is provided to the employee. This benefit is not related to the cost of providing the fuel but rather a statutory amount determined by HMRC each tax year. The car fuel benefit charge for the 22/23 tax year is £25,300 per annum.
To work out the cash equivalent of the fuel:
Fuel charge determined by the HMRC for the tax year (£25,300 for 22/23) ✖️ The appropriate percentage for the car as previously determined
Pro tip: Don’t forget to account for any days the car was unavailable!
If an employee decides to give up their fuel card at any point, the fuel benefit can be pro-rated. If they wish to reinstate the fuel card, the benefit becomes applicable for the whole period the car was available. If they repay the total cost of their private mileage, there would be no fuel benefit charge.
For more information on Section F, please visit this website.
Please note – This guideline is not exhaustive, and it does not cover every eventuality. Its main focus is on the most typical scenarios that usually happen in reality. It's important to be aware of other possibilities as well. If you need more detailed information, please refer to the HMRC website. Always consult a tax advisor if you have any doubts or queries.