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Part 3Employment income: earnings and benefits etc. treated as earnings

Chapter 10Taxable benefits: residual liability to charge

Introduction

201Employment-related benefits

(1)This Chapter applies to employment-related benefits.

(2)In this Chapter—

(3)A benefit provided by an employer is to be regarded as provided by reason of the employment unless—

(a)the employer is an individual, and

(b)the provision is made in the normal course of the employer’s domestic, family or personal relationships.

(4)For the purposes of this Chapter it does not matter whether the employment is held at the time when the benefit is provided so long as it is held at some point in the tax year in which the benefit is provided.

(5)References in this Chapter to an employee accordingly include a prospective or former employee.

202Excluded benefits

(1)A benefit is an “excluded benefit” for the purposes of this Chapter if—

(a)any of Chapters 3 to 9 of the benefits code applies to the benefit,

(b)any of those Chapters would apply to the benefit but for an exception, or

(c)the benefit consists in the right to receive, or the prospect of receiving, sums treated as earnings under section 221 (payments where employee absent because of sickness or disability).

(2)In this section “exception”, in relation to the application of a Chapter of the benefits code to a benefit, means any enactment in the Chapter which provides that the Chapter does not apply to the benefit.

But for this purpose section 86 (transport vouchers under pre-26th March 1982 arrangements) is not an exception.

Cash equivalent of benefit treated as earnings

203Cash equivalent of benefit treated as earnings

(1)The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.

(2)The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit.

(3)The cost of an employment-related benefit is determined in accordance with section 204 unless—

(a)section 205 provides that the cost is to be determined in accordance with that section, or

(b)section 206 provides that the cost is to be determined in accordance with that section.

Determination of the cost of the benefit

204Cost of the benefit: basic rule

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

205Cost of the benefit: asset made available without transfer

(1)The cost of an employment-related benefit (“the taxable benefit”) is determined in accordance with this section if—

(a)the benefit consists in—

(i)an asset being placed at the disposal of the employee, or at the disposal of a member of the employee’s family or household, for the employee’s or member’s use, or

(ii)an asset being used wholly or partly for the purposes of the employee or a member of the employee’s family or household, and

(b)there is no transfer of the property in the asset.

(2)The cost of the taxable benefit is the higher of—

(a)the annual value of the use of the asset, and

(b)the annual amount of the sums, if any, paid by those providing the benefit by way of rent or hire charge for the asset,

together with the amount of any additional expense.

(3)For the purposes of subsection (2), the annual value of the use of an asset is—

(a)in the case of land, its annual rental value;

(b)in any other case, 20% of the market value of the asset at the time when those providing the taxable benefit first applied the asset in the provision of an employment-related benefit (whether or not the person provided with that benefit is also the person provided with the taxable benefit).

If those providing the taxable benefit first applied the asset in the provision of an employment-related benefit before 6th April 1980, paragraph (b) is to be read as if the reference to 20% were a reference to 10%.

(4)In this section “additional expense” means the expense incurred in or in connection with provision of the taxable benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters), other than—

(a)the expense of acquiring or producing the asset incurred by the person to whom the asset belongs, and

(b)any rent or hire charge payable for the asset by those providing the asset.

206Cost of the benefit: transfer of used or depreciated asset

(1)The cost of an employment-related benefit is determined in accordance with this section if—

(a)the benefit consists in the transfer of an asset, and

(b)the asset has been used, or has depreciated, since the person transferring the asset (“the transferor”) acquired or produced it.

(2)The cost of the benefit is the market value of the asset at the time of the transfer.

(3)But the cost of the benefit (“the current benefit”) is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if—

(a)the asset is not a car (within the meaning of Chapter 6),

(b)the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and

(c)the transferor first applied the asset in the provision of an employment-related benefit after 5th April 1980.

(4)In this section “relevant employment-related benefit” means an employment-related benefit the cost of which was to be determined in accordance with section 205.

(5)The amount referred to in subsection (3) is calculated in accordance with the following steps—

Supplementary provisions

207Meaning of “annual rental value”

(1)For the purposes of this Chapter the “annual rental value” of land is the rent which might reasonably be expected to be obtained on a letting from year to year if—

(a)the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and

(b)the landlord undertook to bear the costs of the repairs and insurance and other expenses (if any) necessary for maintaining the land in a state to command the rent.

(2)For the purposes of subsection (1) that rent—

(a)is to be taken to be the amount that might reasonably be expected to be so obtained in respect of the letting, and

(b)is to be calculated on the basis that the only amounts that may be deducted in respect of services provided by the landlord are amounts in respect of the cost to the landlord of providing any relevant services.

(3)If the land is of a kind that might reasonably be expected to be let on terms under which—

(a)the landlord is to provide any services which are either—

(i)relevant services, or

(ii)the repair, insurance or maintenance of any premises which do not form part of the land but belong to or are occupied by the landlord, and

(b)amounts are payable in respect of the services in addition to the rent,

the rent to be established under subsection (1) in respect of the land is to be increased under subsection (4).

(4)That rent is to include—

(a)where the services are relevant services, so much of the additional amounts as exceeds the cost to the landlord of providing the services;

(b)where the services are within subsection (3)(a)(ii), the whole of the additional amounts.

(5)In this section “relevant service” means a service other than the repair, insurance or maintenance of the land or of any other land.

208Meaning of “market value”

For the purposes of this Chapter the market value of an asset at any time is the price which the asset might reasonably be expected to fetch on a sale in the open market at that time.

209Meaning of “persons providing benefit”

For the purposes of this Chapter the persons providing a benefit are the person or persons at whose cost the benefit is provided.

210Power to exempt minor benefits

(1)The Treasury may make provision by regulations for exempting from the application of this Chapter such minor benefits as may be specified in the regulations.

(2)An exemption conferred by such regulations is conditional on the benefit being made available to the employer’s employees generally on similar terms.

Special rules for scholarships

211Special rules for scholarships: introduction

(1)Sections 212 to 214 supplement the preceding provisions of this Chapter in the following ways—

(2)Section 215 limits the extent to which section 331 of ICTA (exemption for scholarship income) applies to a scholarship whose provision constitutes an employment-related benefit.

(3)In this section and sections 212 to 215 “scholarship” includes a bursary, exhibition or other similar educational endowment.

212Scholarships provided under arrangements entered into by employer or connected person

(1)A scholarship which is provided for a member of an employee’s family or household is to be regarded for the purposes of this Chapter as provided by reason of the employment if it is provided under arrangements entered into by—

(a)the employer, or

(b)a person connected with the employer.

(2)Subsection (1) applies whether or not the arrangements require the employer or the connected person to contribute directly or indirectly to the cost of providing the scholarship.

(3)A scholarship is not to be regarded as provided by reason of an employment by virtue of subsection (1) if—

(a)the employer is an individual, and

(b)the arrangements are made in the normal course of the employer’s domestic, family or personal relationships.

(4)This section is without prejudice to section 201(3).

213Exception for certain scholarships under trusts or schemes

(1)This Chapter does not apply to an employment-related benefit consisting in the provision of a scholarship if conditions A, B, C and D are met.

(2)Condition A is that the scholarship would not be regarded as provided by reason of the employment if section 201(3) and section 212 were disregarded.

(3)Condition B is that the holder of the scholarship is a full-time student.

(4)Condition C is that the scholarship is provided from a trust fund or under a scheme.

(5)Condition D is that, in the tax year in which the scholarship is provided, not more than 25% of the total amount of relevant payments is attributable to scholarships provided by reason of a person’s employment.

(6)For the purposes of conditions B and D “full-time student” means a person who is in full-time education at a university, college, school or other educational establishment.

(7)For the purposes of condition D—

214Scholarships: cost of the benefit

If an employment-related benefit consists in the provision of a scholarship from a trust fund—

(a)section 204 does not apply, and

(b)the cost of the benefit is the total of the payments made from the fund to the person holding the scholarship.

215Limitation of exemption for scholarship income in section 331 of ICTA

If an employment-related benefit consists in the provision of a scholarship, section 331(1) of ICTA (exemption for scholarship income) applies only in relation to the holder of the scholarship.