Income Tax (Earnings and Pensions) Act 2003 section 149A

Benefit of car fuel treated as earnings: optional remuneration arrangements

Section 149A deals with how car fuel benefits are taxed when an employee receives them through a salary sacrifice or optional remuneration arrangement, ensuring the employee is taxed on the higher of the salary given up or the normal car fuel benefit charge.

• Where car fuel is provided under a salary sacrifice or optional remuneration arrangement, the employee is taxed on the greater of the amount of salary given up or the normal cash equivalent of the fuel benefit.
• If the amount of salary given up exceeds the normal fuel benefit charge, the salary given up becomes the taxable amount instead of the standard fuel benefit calculation.
• The fuel benefit cash equivalent is treated as zero where the benefit would normally qualify for an income tax exemption that is blocked by the optional remuneration arrangement rules — meaning the full salary sacrificed is taxed.
• Fuel for this purpose does not include electricity or any energy for a car that cannot emit CO2 when driven, and any apportionment of earnings to the fuel benefit must be done on a just and reasonable basis.