Income from Employment – Part 2 :

An Overview:
• Benefits in kind
• Statutory valuation rules
• Trivial benefits
• Living accommodation
• Ancillary services
• Assets loaned to employees
• Cars provided for private use
• Fuel provided for private use
• Van benefit
• Beneficial loans
• Salary sacrifice
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 Benefits in Kind
• Benefits in kind consist of employment income received
in the form of goods or services rather than money

• Income tax is charged on all earnings from employment,

including benefits in kind

• Employees are generally taxed on the cost to the

employer of providing the benefit

• But some benefits (e.g. company cars) are subject to

statutory valuation rules

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 Statutory valuation rules
There are special rules for calculating the taxable benefit in
kind arising in relation to:

• Living accommodation

• Ancillary services connected with living accommodation

• Assets loaned for private use

• Cars and fuel provided for private use

• Vans provided for private use

• Beneficial loans
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 Trivial benefits
• Benefits in kind costing no more than £50 are regarded
as "trivial" and are exempt from both income tax and NICs

• But this exemption does not apply to cash or cash

vouchers and the benefit must not be provided in
recognition of particular services performed by the
employee

• The exemption cannot be used to exempt part of a

benefit costing over £50

• The exemption is capped at £300 per tax year for the

directors of a close company

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 Staff Entertaining - £150 rule

• If employer spends money on hosting an

event (annual event), and :

• a) It is open to all staff, and

• b) it costs less than £150 per guest present,
then staff will not be treated as having received
at ‘Taxable Benefit.

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 Living accommodation
• If an employer owns a property which is provided to
an employee for use as living accommodation, the
basic taxable benefit is equal to the "annual value" of
the property

• In practice, annual value = rateable value

• If the employer rents the property (rather than owns it)

the taxable benefit is the higher of:
− the annual value of the property
− the rent paid by the employer

• The taxable benefit is reduced by any contribution

made by the employee
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 Expensive living accommodation
• There is an increase in the taxable benefit if the
property cost the employer more than £75,000
• The cost of a property is equal to its purchase price,
plus the cost of any improvements made before the
start of the tax year, less any capital contribution
made by the employee
• The increase in the taxable benefit is calculated by
applying the "official rate of interest" to the amount
by which the cost of the accommodation exceeds
£75,000
• If the house was owned by the employer for more than
6 years before occupation by the employee, market
value at occupation may be substituted for cost

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 Example
• Mary is provided accommodation by her employer. The house cost
£220,000 in Dec 2018. Further improvements costing £30,000 were
made in Feb 2019. The property’s annual value is £8,400. Mary paid her
employer £2,800 pa as her contribution.
• Required : Compute Mary’s 2020-21 Taxable benefit. Official rate of
interest at 06.04.2020 was 2.25%.

• Solution : 1st thing to note : it’s ‘expensive’ accommodation (i.e. £75K+)

Annual value 8,400

Add : 2.25% x (220,000 + 30,000 – 75,000) 3,937

12,337

Less : Employee contribution (2,800)

Taxable Benefit 9,537

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 Job-related accommodation
No taxable benefit arises in relation to "job-
related" living accommodation provided for an
employee. Accommodation is job-related if it is:
▪ necessary for the proper performance of the
duties of the employment (eg caretaker)
▪ provided for the better performance of duties
and this is customary (e.g. clergyman).
▪ provided for security reasons

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 Ancillary services
• An employee who is provided with living accommodation
is also taxed on the cost to the employer of providing
any "ancillary services" such as heating, lighting,
cleaning etc.

• If the accommodation is job-related, the taxable benefit

in relation to ancillary services cannot exceed 10% of
the employee’s net earnings

• "Net earnings" means total income from the

employment for the year (apart from the ancillary
services) less deductible expenses

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 Assets loaned to employees
• The employee is taxed annually on 20% of the market
value of the asset on the date of the loan

• This is scaled down if the asset is not available to the

employee for the whole tax year

• If the asset is subsequently given or sold to the

employee, he or she is taxed on the higher of:
- the market value of the asset when first loaned to
the employee, less the taxable benefits arising during
the period of the loan and less any amount paid for the
asset by the employee
- the market value of the asset at the date of transfer,
less any amount paid for the asset by the employee
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 Cars provided for private use
• Employees are taxed on the provision of a motor car
for private use

• The taxable benefit is based upon the list price of the

car when new (reduced by any capital contribution
made by the employee up to a maximum of £5,000)

• The taxable benefit is calculated by applying a

percentage to the car's list price

• The applicable percentage depends upon the car's

emission rating (rounded down to the nearest 5g/km if
over 75g/km)

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Cars provided for private use – Applicable Percentages
CO2 Emissions Electric Range Cars reg’d Cars reg’d on or
g/km (Miles) before 6/4/20 after 6/4/20
0 0% 0%

1-50 130 or more 2% 0%

1-50 70 - 129 5% 3%

1-50 40 - 69 8% 6%

1-50 30 - 39 12% 10%

1-50 Less than 30 14% 12%

51 - 54 15% 13%

55 - 59 16% 14%

60 – 64 17% 15%

65 - 69 18% 15%

70 - 74 19% 17%

75g/km 20% 18%

Each additional
5g/km 1% Increase 1% Increase

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 Cars provided for private use
Further points
• There is a 4% supplement for diesel cars

• The maximum taxable benefit in all cases is 37% of list

price

• If the car is not made available for the whole tax year, or
is off the road for 30+ consecutive days, the benefit is
reduced proportionately

• Any amount paid by the employee towards running costs

(apart from fuel) reduces the taxable benefit

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 Fuel provided for private use
• Fuel provided to an employee for private use gives
rise to a further taxable benefit in kind

• The benefit is calculated using the same percentage

as is used in the calculation of the taxable car
benefit

• This percentage is applied to a fixed amount for the tax

year – £24,500 for 2020-21 (£24,100 for 2019-20)

• If the employee pays for all private fuel there is no

taxable benefit, but the benefit is not reduced by any
partial contribution

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 Example – Car Benefit
• Maisie Maynard is provided a car by her employers. The car cost £25,000
in December 2019 and has CO2 emissions of 138g/km. She contributed
£3,000 towards the cost of the car. The company pays for all Maisie’s fuel
(business and private). Maisie also makes a contribution of £1,000
annually towards the operation cost of the car.
• Required : Compute Maisie’s car and fuel benefit arising
£

a) Car Benefit Net Cost : 25,000 – 3,000 = 22,000

Applicable %: 20% + (138 – 75)/5

= 20% + 12% = 32%

Therefore car benefit : 22,000 x 32% 7,040

Less : Maisie’s annual contribution (1,000)

Maisie’s 2020-21 Car Benefit 6,040

b) Fuel Benefit : 24,500 x 32% 7,840

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 Van benefit
• If a motor van is made available for an
employee’s private use, there is a taxable
benefit in 2020-21 of £3,490
• Where any private fuel is provided there is an
additional taxable benefit of £666
• These charges are reduced proportionately if the
van is not provided to the employee for the
whole of the tax year

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 Beneficial loans
• A "beneficial loan" is one which is granted by an
employer to an employee either interest-free or at
a rate of interest which is below the official rate.
W.e.f. 06.04.2020, official rate = 2.25%

• The taxable benefit in kind for a tax year is equal

to the difference between interest at the official
rate and the amount of interest (if any) payable
by the employee.
• No taxable benefit arises if the total amount of all
beneficial loans to the employee outstanding
during the tax year does not exceed £10,000

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 Beneficial loans which vary
If the amount of a beneficial loan varies during the tax
year, there are two methods of calculating interest for
the year at the official rate:
▪ Normal method:
The amounts of the loan at the start and at the end
of the tax year are averaged and multiplied by the
average official rate for the year
▪ Alternative method:
Interest at the official rate is calculated precisely on
the day-to-day outstanding balance
Either the employee or HMRC can opt for the
alternative method
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 Example
• Stephen Downout works as maintenance manager at Hill Farm Forge – a
business specialising in metal fabrication.
• On 10th January 2020, he asked for and obtained a loan of £21,000 from his
employers. The agreed fixed rate of interest on the loan was 0.75% p.a.
• The balances outstanding on the loan on 05.04.2020 and 05.04.2021 were
£19,500 and £12,400, respectively.
• Required : Work out any taxable benefit in kind arising

Solution:

1. Loan is at less than official rate – therefore (potentially) taxable BIK arises : (2.25-0.75) 1.5%
2. Loan balance is in excess of £10k throughout the year. Therefore taxable BIK does arise
Using the ‘Normal’ Method : Ave loan balance : (19,500 + 12,400) / 2 = 15,950

Therefore taxable benefit in kind for 2020-21 : 15,950 x 1.5% = 239

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 Salary sacrifice
• Employees may give up part of their salary in exchange
for benefits in kind
• As from 6 April 2017, the taxable value of such benefits
is the greater of:
– the value of the benefits calculated in the normal way
– the amount of salary which has been sacrificed
• This rule applies even if the benefits concerned are
normally tax-free
• But certain benefits are excluded from the rule, such as
pensions and pensions advice, childcare, cycle-to-work
benefits and cars with emissions not exceeding 75g/km

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