If an employer provides a car to an employee’s spouse, child or other member of their family or household, the car benefit is normally taxed on the employee, because section 114 of ITEPA 2003 treats a car made available to a family member as made available to the employee. The charge moves to the family member only where they work for the same employer and are chargeable on the car in their own right (section 169), and it disappears where an individual employer gives a relative a car purely as family.

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Why is the employee taxed on a car someone else drives?

Section 114(1) applies the car benefit rules where a car is made available, without transfer of ownership, to an employee or a member of the employee’s family or household, by reason of the employment, and is available for the employee’s or that member’s private use. Section 117 then deems any car made available by an employer to an employee or family member to be made available by reason of the employment.

The effect is that an employer cannot avoid car benefit by putting the car in the name of a spouse, or by letting an adult child have it. The employee is charged the full cash equivalent even if they never sit in the car. HMRC’s guide 480 at paragraph 11.9 states the point directly: a car made available to an employee’s family or household by the employer is deemed to go with the job. The calculation itself is the normal one, explained in company car benefit in kind, and any free private fuel adds the separate charge in the car fuel benefit charge.

Who counts as family or household?

Section 721(5) says a person’s family or household means members of their family, their domestic staff and their guests. HMRC’s Employment Income Manual at EIM20504 lists the people covered:

  • the employee’s spouse or civil partner;
  • their children and the children’s spouses or civil partners;
  • their parents;
  • their dependants;
  • their domestic staff; and
  • their guests, meaning people staying at the employee’s invitation in their home or in accommodation the employee provides.

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When is the car taxed through the family member’s own job instead?

Section 169 deals with the case where the employee (E) and the family member (M) both work for the same employer and the car is made available to M. Without it, the car could be charged twice: on M as an employee given a car, and on E because M is family. Section 169(2) removes the charge on E, for both the car and any fuel, if:

  • M is chargeable to tax on the car under section 120; or
  • M’s employment is lower paid employment as a minister of religion.

EIM23555 sums up the result as one car, one charge, on M. Until 2015 to 2016 there were extra conditions for family members earning under £8,500 a year, because lower paid employees were outside most of the benefits code (EIM20007). Since that threshold went, a family member employed by the same business is usually chargeable in their own right, so section 169 normally applies.

Two limits are important. First, the car must really be made available to M. HMRC’s guidance at EIM23560 says calling a car the spouse’s car is not enough if it is also available to E, or if the terms show it is provided to E who passes it on. Second, if E and M both have private use, the car is shared, and EIM23555 points to the shared car rules instead; see company cars shared between employees.

What if the family member works somewhere else?

A car provided by the family member’s own employer is a benefit of that person’s job, taxed on them in the normal way. It does not become a charge on E simply because E is related. The question for E is only whether a car is made available by reason of E’s employment. Where a car comes from someone other than E’s employer, section 117 does not deem a link, and EIM23260 says the facts decide whether the car was provided because of the employment.

Is there an exception for small family businesses?

Yes, but only where the employer is an individual. Section 117(2) disapplies the deeming rule where the employer is an individual and the car is made available in the normal course of the employer’s domestic, family or personal relationships. GOV.UK gives the example of a sole trader who gives their child, who also works in the business, a car as a birthday present.

EIM23255 and guide 480 paragraph 11.9 say the evidence supporting such a claim would be that the car was not treated as a business asset and no expenses or capital allowances for it were deducted in the parent’s business profits. The exception cannot help a limited company, because section 117(2)(a) requires the employer to be an individual. A director whose company provides a car to their spouse is caught by sections 114 and 117.

How does this work for a director and spouse?

Illustration only. Dana is a director of her own company. The company leases a petrol car with a list price of £30,000 and CO2 of 112g/km, and her husband Sam uses it as his everyday car. Dana uses her own car. For 2026 to 2027 the appropriate percentage is 28%, so the cash equivalent is £8,400.

Situation Who is taxed Benefit
Sam does not work for the company Dana £8,400
Sam is employed by the company and the car is provided to him under his employment Sam (section 169) £8,400
Sam is employed and both have private use of the car Both, split under section 148 £8,400 in total

In every case the company pays Class 1A National Insurance, at 15% for 2026 to 2027, on £8,400. Moving the charge to Sam changes whose tax rate applies, not the size of the benefit, and HMRC will look at whether the car is genuinely provided to him. Paying family members generally is covered in paying family members.

How is it reported?

Where E is chargeable, the car goes on E’s P11D or through E’s payroll, even though the family member uses it. Where section 169 shifts the charge, it is reported for M. GOV.UK lists the individual employer exception among the cases where the employer does not have to pay anything. See benefits in kind and P11Ds.

What mistakes come up?

  • Thinking the spouse’s name on the paperwork moves the charge. It does not; section 114 follows the family link.
  • Applying the family exception in a company. Section 117(2) needs an individual employer.
  • Charging both E and M. If M is chargeable in their own right, section 169 removes E’s charge, including fuel.
  • Ignoring E’s own private use. If E also drives the car privately, the shared car rules apply.
  • Leaving out fuel. Free private fuel for the family member creates a fuel benefit charge on whoever is taxed on the car.

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Sources

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.