ATXP6 UK
Syllabus A1. Income tax A1a. Income from employment

A1a. Use and gift benefit

Syllabus A1a)

Income from employment

Use benefit

If an employer lends an asset (e.g. a computer) to an employee, and the employee uses this asset privately, then the employee must pay income tax on this benefit.

Examples of assets lent:

  1. Computers

  2. TV sets

  3. Boats

  4. Furniture

  5. Motorcycles

How much income tax needs to be paid on this benefit?

  1. We need to find the value of the benefit in money terms.

  2. On this money value, we will apply the income tax rate.

Monetary value of benefit

  1. We must find the market value of the asset when it was first given to the employee.

  2. Multiply this by 20%.

  3. Multiply this value by the number of weeks/months the employee had access to the asset. 

    For example, multiplying by 9/12 means that the employee had access to the asset for 9 out of 12 months in the tax year.

  4. Deduct any rent that the employee pays to the employer to use the asset.

Proforma:

£
Assessable benefit: 20% * market value * x/12 X
Less: Rent paid to employer to use asset  (X)
Use benefit  X

Illustration:

Manish’s employer purchased a dishwasher for Manish’s use on 1 April costing £900. 

Manish paid his employer £150 to use the dishwasher for the tax year.

What use benefit will be assessable on Manish?

£
Assessable benefit: 20%*£900*12/12 =  180
Less: Rent paid to employer to use asset  (150)
Use benefit  30

Gift benefit

This benefit is linked with the use benefit explained above. 

After an employer has given the employee an asset to use privately, the employer may then decide to give this asset to the employee as a gift. 

For example, an employer gave his employee a computer to use for private purposes for 2 years. After 2 years, the employer then decided to give this computer to the employee as a gift. 

The employee will need to pay income tax on the money value of gift benefit.

How to calculate the money value of this gift?

The money value will be the higher of 2 figures:

Figure 1:

  • Find the cost to the employer (the original market value of the asset).

  • Deduct any use benefits that the employee has already paid income tax on.

For example, if the computer cost the employee £750 2 years ago when he purchased it, and the use benefit that the employee paid income tax on for each year was £150, then the gift benefit will be:

Original market value £750

Year 1 (£150)

Year 2 (£150)

Gift benefit £450 - Income tax will be paid on this figure.

Figure 2:

  • Find the market value of the asset at the date of the gift to the employee.

For example, after 2 years, if the computer had a market value of £500, the benefit would be:

Market value at date of gift £500

Therefore, the Gift benefit is £500

Note that we must take the higher figure out of Figure 1 and Figure 2:

  • Figure 1: £450

    Figure 2: £500

    Therefore, the gift benefit, in this case, would be £500.

Illustration:

Manish’s employer purchased a dishwasher for Manish’s use on 06/04/2017, costing £900.

On 06/04/2018 Manish was given the dishwasher by his employer. It’s market value then being £150.

  • What gift benefit will be assessable on Manish?

Solution:

Use benefit assessed in 17/18:
£
Use benefit assessed 20%*£900*12/12 = 180
Use benefit  180

Gift benefit assessed in 18/19:

Figure 1: £
Market value when first provided 900
Less: Use benefit already assessed (180)
Gift benefit 720
Figure 2: £
Market value on date of gift 150

Higher of:

Figure 1:  £720

Figure 2:  £150

The gift benefit that will be assessed on Manish is £720