Assets made available without transfer
Published 20 March 2017
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Draft guidance for changes to ITEPA 2003 - 20 March 2017
EIM21873 - Asset made available without transfer to a director or employee from 6 April 2017
From the 2017/18 tax year Employment Income Manual (EIM) pages, EIM21630 to EIM21638 no longer apply. Pages EIM21875 to EIM21895 should be used instead.
From 6 April 2017 there are new tax rules for directors or employees who have an asset made available to them for their private use (without ownership of the asset actually transferring). These rules explain how to calculate the chargeable value of the benefit (the ‘cash equivalent’) when an employee has an asset made available for him or her to use for private use or where the asset is used for both private and business use.
The rules for fair bargain (please read EIM21004) or where the ownership of the asset is transferred to the director or employee have not changed.
This guidance consists of:
- a comparison of the new and old rules - EIM21875
- what an asset is for these rules - EIM21878
- when the rules apply - EIM21880
- how to calculate the chargeable benefit - EIM21882
- how to calculate the annual cost of the benefit - EIM21885
- how to calculate the deduction for unavailability - EIM21888
- example on calculating the deduction for unavailability - EIM21890
- how to calculate the chargeable benefit if the asset is available to more than one employee or director at the same time - EIM21892
- examples showing how the rules apply in different circumstances - EIM21895
EIM21875 - Asset made available without transfer to a director or employee: comparison of rules
How the new and old rules compare
| New rules - from 6 April 2017 the rules will apply if: | Old rules - up to 6 April 2017 the rules applied if: |
|---|---|
| The asset is made available to the director or employee (or their family or household) for private use. | The asset is placed at the disposal of or is used by the director or employee (or their family or household). |
| For assets other than land, the value of the asset is 20% of the market value of the asset when first used. | For assets other than land, the value of the asset was 20% of the market value of the asset when first used. |
| There are specific rules that state how to work out the cash equivalent of the asset if it is used for both private and business purposes. | There were no specific legislative rules that explained how to work out the cash equivalent if it is used for both private and business purposes. |
| The same chargeable amount is used as the basis for calculating the tax and Class 1A NICs even if the asset is used for both private and business purposes. | There were different chargeable amounts of income tax and Class 1A NICs if the asset was used for both private and business purposes. |
EIM21878 - Asset made available without transfer to a director or employee: definition of asset
From 6 April 2017 only
What is an asset?
The term asset is a general term used for things like a motorcycle, laptop, clothing, fridge, quad bike, yacht, plane, land, cars, and house.
The new rules only apply to assets where other chapters of the benefits code do not apply. This means that these rules do not apply to cars, vans or living accommodation.
| Type of asset | Cash equivalent of the benefit |
|---|---|
| Land (including buildings that are not rated) | The annual rental value in accordance with Section 207 ITEPA 2003 (please read EIM21885) |
| Rated buildings but not buildings used as living accommodation | The gross rating value |
| Living accommodation | Special rules apply (please read EIM11321). |
| Motor cars | Special rules apply (please read EIM23000) |
| Vans | Special rules apply (please read EIM22700) |
| All other assets | 20 per cent of the market value at the time it was first used as a benefit (please read EIM21885) |
EIM21880 - Asset made available without transfer to a director or employee: when it applies
Section 205 ITEPA 2003
From 6 April 2017 only
These rules apply if Chapter 10 of Part 3 to ITEPA 2003 (which covers the residual liability to charge) applies and an asset is made available to a director or employee (or their family or household) for private use without transferring ownership of the asset. If so, then Sections 205, 205A and 205B ITEPA 2003 set out rules for calculating the cash equivalent of the benefit.
Section 201 ITEPA 2003
Section 201 provides that Chapter 10 applies to an employment-related benefit, which is:
- a benefit or facility of any kind is provided to an employee or a member of the employee’s family or household in a tax year;
- by reason of the employment;
- is not an excluded benefit (mainly benefits that are taxed under one of the other Chapters of the benefits code) – please read Section 202 ITEPA 2003.
Please read EIM21002 for full details about how Section 201 applies.
Section 205 ITEPA 2003
From 6 April 2017 the cash equivalent of the benefit is determined under Section 205 where an asset is made available for private use (Section 205(1)(a)) with no transfer of the property in the asset.
Private use means private use by the director or employee (or their family or household).
Made available does not just mean use, it means the ability to use the asset even if the employee or director (or family or household) decide not to use it.
Example
An employee is lent a games console by his employer for his daughter to use. His daughter does not play on the console. The games console is still available for his daughter’s private use even if she does not use it.
The exception to ‘made available for private use’
The legislation allows for an exception to the ‘made available for private use’ rule. This exception only applies if the terms under which the asset is made available prohibit private use and no private use is made of the asset.
The exception has two parts to it and both parts must be met before the exception can apply.
These are that:
a.) The terms on which the asset is made available prohibit private use.
This means that there has to be a real ban on private use that is recognised by both the person providing the asset and the employee or director (or employee’s family or household) and both parties understand the terms on which the asset has been made available.
b.) The asset is not privately used.
Whether the exception applies depends on the terms and conditions under which the asset is made available. The prohibition of use has to be an effective prohibition. That means that both the employee and employer understand that it is forbidden to use the asset privately and as a matter of fact it is not used privately.
Example
An employee is allowed to use a moped and the terms and conditions ban private use. The keys and moped are always kept at the employer’s office when it isn’t being used for deliveries. So the employer or employee are able to demonstrate it is not used privately.
Exemption under Section 316 ITEPA 2003
Where an asset is provided for use by an employee in performing the duties of the employee’s employment then it may be exempt from a liability to tax under the benefits code under Section 316 ITEPA 2003. Please read EIM21611 onwards.
EIM21882 - Asset made available without transfer to a director or employee: how to calculate the cash equivalent of the benefit (step 1)
Sections 205, 205A and 205B ITEPA 2003
From 6 April 2017 only
There are three steps to calculating the cash equivalent of the benefit of the use of an asset made available for private use:
Step 1: Calculate the annual cost of the benefit - (EIM21878)
Assets that are not land: Section 205(2) ITEPA 2003 (EIM21885)
Land - Section 207 ITEPA 2003 (EIM21885)
(The following steps do not apply to land)
Step 2: Deduct any amounts for days when the asset is unavailable for private use - Section 205A ITEPA 2003 - EIM21888 and EIM21890
Step 3: Apply the sharing rules (if appropriate) - Section 205B ITEPA 2003 - EIM21892
EIM21885 - Asset made available without transfer to a director or employee: how to calculate the annual cost of the benefit (step 1)
Sections 205 and 205A ITEPA 2003
From 6 April 2017 only
Step 1: Calculate the annual cost of the benefit
The annual cost of the benefit of an asset (but not land) is 20% of the market value of the asset at the time when the asset is first applied as an employment-related benefit (Section 205(2) ITEPA 2003). It also includes additional expenses (that is expenses incurred in or in connection with providing the asset except the cost to the person of acquiring or producing the asset or hire charges paid by person providing it) (Section 205(4) ITEPA 2003).
Market value will normally be the cost of the asset when first applied as a benefit in kind at the time it is bought by the person providing the benefit. If there is a dispute about what the market value of an asset is when it is first applied as a benefit then you should refer the issue to your specialist support in the first instance.
The annual cost of a benefit that is land is the rent that might reasonably be expected to be obtained on a letting from year to year if (Section 207 ITEPA 2003):
- the tenant undertook to pay all usual tenant’s taxes, rates and charges
- 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 that rent
EIM21888 - Asset made available without transfer to a director or employee: deductions for unavailability of the asset for private use (step 2)
Section 205A ITEPA 2003
From 6 April 2017 only
Step 2: Deduct any amounts for unavailability of the asset for private use (except land)
Section 205A ITEPA 2003 provides the rules for calculating whether there should be a deduction because the asset was unavailable for private use at any point during the relevant tax year.
Section 205A(2) ITEPA 2003 defines what unavailable means. The situations are:
- The day before the asset is first available to the employee or director (or family or household).
- The day after the asset is no longer available to the employee or director (or family or household).
- If for more than 12 hours in any day the asset is:
- Not in a fit condition to use
- It is undergoing repair of maintenance
- It cannot be lawfully used
- A person has possession of the asset by way of a lien over it, and that person is not the employer, a person connected with the employer, the employee or director or a member of their family or household
- The asset is used in such a way that it means it is not being used by, or at the direction of, the employee or director (or the employee’s family or household).
- If on a particular day the employee or director is obliged to use and uses the asset in the performance of their duties and does not use the asset for anything other than the performance of those duties.
This means that if on any day there is both private and business use the unavailable for private use rules do not apply.
The amount of the deduction is calculated by dividing the number of days the asset is unavailable for private use by the number of days in the year and then multiplying the resulting figure by the annual cost of asset.
EIM21890 gives an example of how this calculation works
EIM21890 - Asset made available without transfer to a director or employee: example of calculating the unavailable for private use deduction
Section 205A ITEPA 2003
From 6 April 2017 only
The amount of the deduction is calculated by dividing the number of days (U) the asset is unavailable for private use by the number of days in the year (Y) and then multiplying the resulting figure by the annual cost of asset (A). The formula for the unavailability deduction is ‘U/Y x A’.
Example
A director is provided with the use of a helicopter in a tax year. The market value of the helicopter when it was first made available for the directors’ private use is £800,000.
The asset was used for a mixture of business and private purposes and was first provided on 6 July in that tax year (91 days after the start of the tax year). During the rest of the year there were 10 days when the helicopter is only used for the duties of the employment (and so is treated as unavailable for private use under Section 205A(2)(d)) and 10 days when another employee had sole use of the asset (and so is treated as unavailable for private use on the day under Section 205A(2)(c)(v)).
The employee pays £6,000 towards the use of the asset before 6 July following the end of the relevant tax year. There are 365 days in the relevant tax year (Y).
| Market value and expenses | Amount £ |
|---|---|
| 20% market value when first available | £160,000 |
| Additional expenses associated with its provision | £20,000 |
| Annual cost of the asset (A) | £180,000 |
| Calculation of days | Total |
|---|---|
| Number of days in the tax year before the benefit was provided | 91 days |
| Number of days the asset was only used for employment | 10 days |
| Number of days when the asset was used only by another employee | 10 days |
| Total number of days the asset was unavailable for private use during the tax year (U) | 111 days |
Deduction from annual cost:
U ÷ Y x A = 111 ÷ 365 x 180,000 = £54,740
Chargeable cost of the asset is £180,000 minus £54,740 which is £125,260.
As the employee has made good part of the cost by paying £6,000 and it was paid before 6 July following the end of the relevant tax year the cash equivalent of the benefit for both tax and Class 1A NICs is £119,260.
EIM21892 - Asset made available without transfer to a director or employee: unavailability - applying the sharing rules (step 3)
Section 205B ITEPA 2003
From 6 April 2017 only
Step 3: Apply the sharing rules (if appropriate)
This step only applies if during the relevant tax year the asset is available to more than one employee or director for private use at the same time (including their respective family and household). Where this is the case the combined total of the chargeable benefits for each employee or director should be no greater than the annual cost of the benefit (calculated under Section 205(2) ITEPA 2003).
If the asset is shared then the chargeable benefit is calculated for each employee applying steps 1 and 2 and then it is reduced on a just and reasonable basis depending on how the asset has been shared.
The sharing rules do not apply if the asset is made available for private use to different employees on some form of rota (or something similar). In other words, the employees do not have the asset available for private use at the same time. However, a deduction might be due under Section 205A(2)(c)(v) ITEPA 2003 where another employee uses the asset for more than 12 hours during a day.
EIM21895 - Asset made available without transfer to a director or employee: some examples
From 6 April 2017 only
Example 1
An employer provides a games console for an employee which is kept at home. It is only used occasionally to play games on through the year. The games console market value is £280 and it has been available for the whole of the relevant tax year.
Step 1: Annual value of the asset when first applied as an employment-related benefit is 20% of £280 which is £56.
Step 2: There are no deductions as the console is available for private use throughout the year.
The cash equivalent of the benefit for both tax and Class 1A National Insurance purposes is £56.
Example 2
An employer provides her employee with a moped to make deliveries for the business. The employee also drives the moped to commute between home and her permanent workplace and uses it at the weekend, so there is mixed business and private use. The market value of the moped when first applied as a benefit is £3,000 and the business use works out at 50% of the total use. It is delivered new on 1 September. There are 365 days in the relevant tax year (Y).
Step 1: Annual value of the asset when first applied as a benefit is 20% of £3,000 which is £600 (A).
Step 2: There are 148 days at the start of the year where the moped is unavailable for private use. This leaves 217 days where it is used for a mixture of business and private purposes. However as the moped is used for journeys to and from work and at the weekend there is no day when the moped is solely used for business. The total number of days it is unavailable for private use (U) is therefore 148.
The deduction for unavailability is U ÷ Y x A which is 148 ÷ 365 x 600 = £243.
The cash equivalent of the benefit for both tax and Class 1A National Insurance purposes is £600 minus £243 which is £357.
Example 3
A close company purchases a new jet, there is only one director and he is also the sole shareholder. The market value of the jet is £20,800,000. The jet is flown exclusively for business purposes on 20 days in the relevant tax year and there are additional expenses of £35,000 to make these flights. There are 366 days in the relevant tax year (Y).
Step 1: Annual value of the asset at first use is 20% of £20,800,000 which is £4,160,000 plus the additional expenses of £35,000. This gives a total of £4,195,000 (A).
Therefore the asset is made available to the director for the remaining 346 days in the year even though he doesn’t actually make use of the plane and there are 20 days when it is unavailable for private use (U).
Step 2: The deduction for unavailability of U x A ÷ Y which is 20 x 4,195,000 ÷ 366 = £229,234.
Therefore the cash equivalent of the benefit for both tax and Class 1A National Insurance purposes is £4,195,000 - £229,234 which is £3,965,766 for the relevant tax year.
Example 4
A company buys a painting for £50,000 which is then hung on a wall in the director’s home for the whole tax year.
The painting is available for the director’s personal enjoyment so there is private use whilst it is in his home. The cash equivalent of the benefit is £10,000, being 20% of £50,000.