ACCA Advanced Taxation (ATX) Practice Exam

In terms of taxable benefits, how are car capital contributions limited?

1. No maximum limit

2. Cap at £2,000

3. Max £5,000

4. Max £10,000

The correct answer is: Max £5,000

The correct answer highlights that capital contributions made by employers towards the purchase of cars provided to employees are subject to a specific limitation for tax purposes. In the context of taxable benefits, the Inland Revenue has capped the amount that can be considered as a taxable benefit when a car is made available for private use by an employee. This cap of £5,000 means that any employer contribution exceeding this limit would not be eligible for tax relief regarding the employee's benefit-in-kind. Therefore, if an employer contributes up to £5,000 towards the acquisition cost of a car, this entire amount is considered in calculating the taxable benefit. Understanding this limit is essential for both tax compliance and strategic tax planning, as it directly impacts the amount of tax chargeable on the benefits associated with employee cars. In contrast, other options either suggest no limit or other cap amounts, which are not reflective of the established regulations regarding car capital contributions.