Income Tax (Earnings and Pensions) Act 2003 section 154A

Benefit of van treated as earnings: optional remuneration arrangements

Section 154A sets out how the taxable benefit of a company van is calculated when the van is provided through an optional remuneration arrangement, such as a salary sacrifice scheme.

• Where a van is provided under an optional remuneration arrangement, the taxable amount is the higher of the total salary or benefits given up ("foregone amount") and the normal van benefit charge (the "modified cash equivalent")
• The "relevant amount" treated as earnings is found by taking the total foregone amount and deducting any payments the employee makes for private use of the van
• If the van benefit would otherwise have been exempt from income tax (but for the rules blocking exemptions under optional remuneration arrangements), the modified cash equivalent is treated as zero — meaning the full foregone amount is taxed
• The total foregone amount includes not only the salary or benefits given up for the van itself, but also amounts foregone for any connected benefits provided under the arrangement, excluding fuel and the provision of a driver