Income Tax (Earnings and Pensions) Act 2003 section 120A

Benefit of car treated as earnings: optional remuneration arrangements

Section 120A sets out when a company car benefit provided through a salary sacrifice or optional remuneration arrangement is taxed on the higher of the amount given up or the car's normal taxable value, and applies only to cars with CO2 emissions exceeding 75 grams per kilometre.

• Where an employee receives a company car through an optional remuneration arrangement and the car's CO2 emissions exceed 75 g/km, a special tax charge applies based on the "relevant amount" rather than the normal car benefit rules
• The special charge only applies if the total amount the employee has given up (salary sacrifice plus amounts foregone for connected benefits, excluding fuel and a driver) exceeds the modified cash equivalent of the car benefit
• Cars with CO2 emissions of 75 g/km or below remain taxed under the standard car benefit rules, regardless of whether they are provided through an optional remuneration arrangement
• The total foregone amount includes not only the salary sacrificed for the car itself but also amounts given up for other connected benefits such as insurance or maintenance, but specifically excludes fuel and driver provision