Replacement company cars and the benefit charge

If the usual company car is off the road for less than 30 days and the employer provides a stand in, section 145 of ITEPA 2003 means the stand in is not taxed as well, provided it is not materially better than the usual car or was not provided in order to give the employee a better car. Two charges can arise where an upgrade is deliberate, and where the usual car is off the road for 30 days or more, when each car is taxed for its own days.

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Why is a replacement car a tax issue at all?

Car benefit is charged for each car made available to an employee for private use. Under section 143 a gap in availability only reduces the charge if it lasts at least 30 consecutive days (see company car unavailable for part of the year). So when the usual car spends a week in the garage, the employee is still taxed on it for the whole year. HMRC points out at EIM25125 that without a special rule there could also be a separate charge for the car lent in the meantime, so the employee would pay twice for the same week of motoring.

When does section 145 remove the second charge?

Section 145 applies where all of these conditions are met:

the car normally available to the employee (the normal car) is not available for a period of less than 30 days;
another car (the replacement car) is made available to replace it for all or part of that period;
the employee is chargeable on both cars under the car benefit rules; and
the replacement car meets condition A or condition B.

Condition A is that the replacement car is not materially better than the normal car. Condition B is that it is not made available under an arrangement whose main purpose, or one of whose main purposes, is to give the employee the benefit of a materially better car. Only one of them needs to be met.

Where section 145 applies, the replacement car is treated as unavailable for the days it stands in, so it carries no charge, and any payments the employee makes for private use of the replacement are treated as made for the normal car. HMRC adds that there is no separate fuel benefit charge for the replacement car either (EIM25125).

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What does materially better mean?

Section 145(5) says a replacement car is materially better if it is materially better in quality, or if the interim sum for it at step 3 of the car benefit calculation (broadly list price plus accessories less capital contributions) is materially higher than the interim sum for the normal car. HMRC expects most short term replacements to be of similar quality (EIM25130). The statute does not set a percentage, so the comparison is one of fact and degree.

Even a materially better car can be a replacement under condition B, as long as the upgrade was not the purpose. HMRC says at EIM25135 that for an arrangement to have that purpose there must be a specific intention to provide a better car.

What do HMRC’s examples show?

HMRC uses an employee whose normal car is a small hatchback with a list price of £9,000.

Courtesy car (EIM25180). The hatchback needs a week’s repair. The only courtesy car the garage has that week is a family saloon with a list price of £15,000. It costs more, but there was no arrangement to give the employee a better car, so it is a replacement car and only the hatchback is taxed.
Holiday upgrade (EIM25185). The employee plans a two week family holiday, and the employer withdraws the hatchback and provides a large estate car for the trip. That is an arrangement to provide a materially better car, so section 145 does not apply. The estate car is taxed for the period it is available, in addition to an unreduced charge on the hatchback, because the hatchback was away for less than 30 days.

What if the normal car is off the road for 30 days or more?

Section 145 only applies to a gap of less than 30 days. For a longer gap, section 143 reduces the charge on the normal car for the days it was unavailable, and the replacement car is taxed as a car in its own right for the days it was available. Days before it was first provided and after it was handed back are unavailable days for that car under section 143(2). HMRC’s guide 480 at paragraph 12.37 confirms that cars provided one after another are treated as separate cars, each with its own reductions. The employee therefore has two charges in the year, but each covers only part of it, so in most cases the total is close to what one car would have cost. The second charge is worked out on the replacement car’s own list price and emissions, which can make the total higher or lower.

How does this work in practice?

Illustration only. An employee’s normal car has a full year charge of £6,000. After an accident it is off the road for 50 consecutive days, and the employer’s hire company supplies a similar car with a full year charge of £7,300 for those 50 days. The tax year has 365 days.

Car	Calculation	Charge
Normal car	£6,000 × 315 ÷ 365	£5,178
Replacement car	£7,300 × 50 ÷ 365	£1,000
Total		£6,178

Had the repair taken 20 days, section 145 would apply instead. The normal car would carry its full £6,000 charge and the replacement would be ignored, as long as it was not a deliberate upgrade.

How should employers handle replacements?

Keep a note of each period the normal car was off the road, the replacement supplied, and why that model was chosen. Where the garage or hire firm simply supplied what it had, record that. If the gap reaches 30 days, both cars need to be reported for their own periods, with fuel benefit considered for each car as set out in the car fuel benefit charge. A car kept in a genuine pool for several employees is a separate matter, covered in the pool car exemption.

What mistakes come up most often?

Reporting every short term courtesy car as an extra benefit when section 145 removes the charge.
Ignoring a planned upgrade for a holiday or special occasion, which section 145 does not cover.
Assuming the replacement is ignored when the normal car was away for 30 days or more.
Forgetting that private use payments made for a qualifying replacement count towards the normal car.

The wider calculation is explained in company car benefit in kind.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.