Chapter 5: Deductions for earnings representing benefits or reimbursed expenses
Background
1607.This Chapter deals with cases where the employer, or a third party, bears the cost of something that is taken into account as part of the employee’s earnings, but the employee is entitled to a deduction from those earnings in respect of that cost.
1608.This Chapter derives from provisions in sections 193 to 195 of ICTA and in sections 50 to 52 of FA 1989. In the majority of cases dealt with, the amount of such a deduction is expressed as being “equal to so much of that cost or, as the case may be, those expenses as fall to be included in those emoluments”. In the present Chapter, by contrast, it is possible to define the amount in question as “the included amount”, and then to say that “the deduction is equal to the included amount”.
1609.Another common thread in the provisions dealt with in this Chapter is that the amounts included in the employee’s earnings are generally expressed in terms of provision being made “by or on behalf of the employer” (or similar). It has not been possible to establish the original policy reasons for limiting the scope of the deductions to provision made in this way. There may be circumstances where the provision is by or on behalf of someone other than the employer and the amount is still chargeable as part of the employee’s earnings. As long as all the other conditions for the deductions are met, there seems no reason why a deduction should be withheld because the provision was made by a person other than the employer or someone acting on the employer’s behalf. The words “by or on behalf of the employer” (or similar) which appear in the source legislation are therefore omitted. To the extent that this change has any practical effect, it will be in favour of the taxpayer. See Change 101(A) in Annex 1.
1610.This Chapter does not deal with a deduction for expenses incurred and paid by the employee without any reimbursement. That kind of deduction is dealt with in Chapter 2 of this Part.
