Income Tax (Earnings and Pensions) Act 2003 section 121A

Optional remuneration arrangements: method of calculating relevant amount

Section 121A sets out the three-step method for calculating the "relevant amount" used to determine the taxable benefit of a company car provided under an optional remuneration arrangement (commonly known as a salary sacrifice scheme).

• Start with the total amount of salary or other earnings the employee has given up in connection with the car for the tax year
• Deduct any capital contributions the employee has made towards the cost of the car or its accessories to arrive at a provisional sum
• Deduct from the provisional sum any payments the employee has made for private use of the car — the result is the "relevant amount"
• Where the foregone earnings relate to more than one benefit, they must be apportioned on a just and reasonable basis