CAT / FIA FTX Syllabus C. Income Tax Liabilities - Use and gift benefit - Notes 6 / 15
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:
Computers
TV sets
Boats
Furniture
Motorcycles
How much income tax needs to be paid on this benefit?
We need to find the value of the benefit in money terms.
On this money value, we will apply the income tax rate.
Monetary value of benefit
We must find the market value of the asset when it was first given to the employee.
Multiply this by 20%.
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.
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 and the employee was taxed on a benefit for the use of the asset in each of those 2 years.
After 2 years, the employer then decided to give this computer to the employee as a gift and the employee was then taxed on an additional benefit for the gift.
The employee will need to pay income tax on the monetary value of gift benefit.
How to calculate the monetary value of this gift?
The monetary 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 employer £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 as this is the higher of the two figures.
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 06/04/2023, costing £400.
On 06/04/2024 Manish was given the dishwasher by his employer. It’s market value then being £200.
What gift benefit will be assessable on Manish?
Solution:
| £ | ||
|---|---|---|
| Use benefit assessed | 20%*£400*12/12 = | 80 |
| Use benefit | 80 |
Gift benefit assessed in 24/25:
| Figure 1: | £ | |
|---|---|---|
| Market value when first provided | 400 | |
| Less: | Use benefit already assessed | (80) |
| Gift benefit | 320 |
| Figure 2: | £ | |
|---|---|---|
| Market value on date of gift | 200 | |
| Gift benefit | 200 |
Higher of:
Figure 1: £320
Figure 2: £200
The gift benefit that will be assessed on Manish is £320