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

Meaning of "modified cash equivalent"

Section 121B sets out how to calculate the "modified cash equivalent" of a company car benefit, which is a higher figure than the normal cash equivalent because it disregards capital contributions and employee payments for private use of the car.

• The modified cash equivalent is calculated by taking the car's price, adding qualifying accessories to produce an interim sum, then multiplying by the appropriate percentage and deducting for any periods the car was unavailable
• Where a car is shared between employees, the modified cash equivalent is reduced in accordance with sharing rules
• The modified cash equivalent is treated as zero if the car benefit would have been exempt from income tax were it not caught by the rules on optional remuneration arrangements
• Special calculation rules apply for cars running on road fuel gas and for classic cars provided under optional remuneration arrangements