Other benefits

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OTHER BENEFITS

Generally, the basis for calculating the taxable value of any other benefit is the cost to the employer.

There are various benefits which are exempt or partially exempt. 

Although correctly identifying the tax treatment of such a benefit may result in only a half mark or one mark, it is important that you correctly identify such benefits so that time is not wasted with unnecessary calculations.

Finally, there is no exhaustive list of benefits, but you must keep in mind that if an employee is using something for personal purposes and the employer is paying for it, then the benefit that is likely to arise is the cost to the employer.

For example if an employer provides education for an employee's child that cost the employer £600, then the benefit that will arise on the employee is the cost to the employer of £600.

Working from home

Payments for home working are exempt up to £6 per week.

An employee can claim a deduction for the additional costs of working from home, such as expenditure on lighting and heating.

  • Employers can pay up to £6 per week (without the need for supporting evidence of the costs incurred by the employee).

  • Payments above the £6 require evidence of the employee's actual costs.

Relocation costs

Only £8,000 of the relocation costs is exempt.

Example

Peter sold his house and purchased a new one, in order to live near the premises of Cows Ltd.

£30,000 of the payment is to compensate Peter for having to sell his house.

£12,000 is in respect of the costs incurred by Peter in relation to moving house.

Required:

Explain the income tax implications for Peter.

  • The compensation in respect of the sale of the house will be regarded as having been derived from employment, such that it will be taxable in full.

  • £8,000 of the payment in respect of the cost of moving house will be exempt.

  • The remaining £4,000 (12,000 - 8,000) will be taxable.

Illustration:

Vary plc provides its employees with various benefits. 

The benefits were provided:

  • 1) Denzil was provided with two mobile telephones. 

    The telephones had each cost £250 when purchased by Vary plc in January.

    The company paid for all of Denzil’s business and private telephone calls.

  • 2) Emily had her health club membership fee of £710 paid for by Vary plc

  • 3) Frederick spent five nights overseas on business for Vary plc. 

    The company paid him a daily allowance of £10 to cover the cost of personal expenses such as telephone calls to his family.

  • 4) Grace was paid £11,000 towards the cost of her removal expenses when she permanently moved to take up her new employment with Vary plc, as she did not live within a reasonable commuting distance. 

    The £11,000 covered both her removal expenses and the legal costs of acquiring a new main residence.

  • 5) Hillary’s three year old daughter was provided with a place at Vary plc’s workplace nursery. 

    The total cost to the company of providing this nursery place was £10,800 (240 days at £45 per day).

  • 6) June had the use of Vary plc’s company gym which is only open to employees of the company. 

    The cost to Vary plc of providing this benefit to June was £340.

  • 7) Kristin was provided with free meals in Vary plc’s staff canteen. 

    The total cost of these meals to the company was £1,460. 

    The canteen is available to all of the company’s employees.

  • 8) Larry regularly works from home two days per week, and was paid an allowance of £288 (48 weeks at £6 per week) to cover the extra light and heat costs that were incurred due to this home working.

  • 9) Marge was given a watch valued at £750 as an award for her 20 years of employment at Vary plc.

  • 10) Nile had £440 of her medical costs paid for by Vary plc. 

    She had been away from work for two months due to an injury, and the recommended medical treatment was to assist her return to work.

    What taxable benefits will arise on the employees?

Solution:

1) Denzil

Providing one mobile phone to an employee does not result in a taxable benefit.

If additional mobile phones are provided to employees then 20% of the market value of the phone will be the tax benefit assessed on the employee.

This is very similar to the use benefit

  • The provision of one mobile telephone does not give rise to a taxable benefit.

  • The taxable benefit for the use of the second telephone is £50 (250 x 20%).

2) Emily

  • The benefit of the health club membership is the cost to Vary plc of £710.

3) Frederick

  • Payments for private incidental expenses are exempt up to £10 per night when spent outside the UK, so the allowance does not result in a taxable benefit.

  • Note that the equivalent UK allowance is only £5 per night.

4) Grace

  • Only £8,000 of the relocation costs is exempt, and so the taxable benefit is £3,000 (11,000 – 8,000).

5) Hillary

  • The provision of a place in a workplace nursery does not give rise to a taxable benefit.

6) June

  • The use of a company gym does not give rise to a taxable benefit as the benefit is available to all employees.

7) Kristin

  • The provision of meals in a staff canteen does not give rise to a taxable benefit as the benefit is available to all employees.

8) Larry

  • Payments for home working are exempt up to £6 per week, so the allowance does not result in a taxable benefit.

9) Marge

  • A non-cash long-service award is not a taxable benefit if it is for a period of service of at least 20 years, and the cost of the award does not exceed £50 per year of service.

10) Nile

  • The payment of medical costs of up to £500 does not result in a taxable benefit. 

    The exemption applies where medical treatment is provided to an employee to assist them to return to work after a period of absence due to ill-health or injury.

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