Valuation of company benefits (480: Chapter 6)
Find out how to value company benefits for your employees.
General rule
6.1
Sections 203(2) and 204
The amount of a benefit which is treated as earnings from the employment is the cash equivalent value of the benefit. Apart from those benefits referred to in chapters 11 , 12, 13, 14, 17, 21, 22 and 23 the general rule is that the value for tax purposes of a benefit or facility provided for an employee or the employee’s family or household is the expense incurred by the employer (or the provider of the benefit) in providing the benefit, less the amount made good by the employee to those providing the benefit.
6.2
If the benefit is shared with other people, the benefit to the employee is based on the cash equivalent value (the total cost minus any amount made good) of the benefit, apportioned as necessary if, for instance, the benefit is provided for use partly to the employee and partly to the employer.
If a benefit is provided to the employee for both business and private purposes, no apportionment of the cash equivalent value is due. The full cash equivalent value represents the measure of the benefit provided to the employee for both private and business purposes, and this is the amount that must be returned on forms P11D and P11D(b) or payrolled if you’re registered to payroll benefits.
However, to determine the employment Income Tax liability for the benefit, the employee can seek a deduction under Sections 336 to 338 (see chapter 7 paragraph 7.1) for expenses incurred for business use, to set against the cash equivalent value of the benefit.
6.3
Section 365
If the employee does not incur any expenses because the employer meets all the costs incurred for business purposes, but otherwise the employee would have incurred expenses for business use of the benefit, the employee is entitled to a deduction under Section 365, equivalent to the proportion that the business use of the benefit represented relative to its total use for business and private purposes.
For example, if an asset provided as a benefit is used by an employee 40% for business use and 60% for private use, the cash equivalent value payrolled if you’re registered to payroll benefits or returned on form P11D/P11D(b) is for the full 100% use but for tax purposes the employee is entitled to a deduction under Section 365 equivalent to 40% of the cash equivalent value.
Consequently, the tax liability will be based on 60% of the cash equivalent value, which represents the proportion of private use of the benefit.
6.4
Exception - Section 62
If the benefit consists of the transfer to the employee of any goods or assets which they are then able to sell for cash, the value of the benefit for tax purposes is the greater of the:
- second-hand value of the goods or assets in the employee’s hands, and the
- expense incurred by the employer under paragraph 6.5 (also consider paragraph 6.9)
6.5
Where the benefit consists of the employee being supplied with goods or services, the expense incurred by the employer should include the extra cost of:
- buying the goods or providing the services
- selecting and testing those goods or services
- storing, distributing and installing the goods or services
- servicing and other ‘after sales’ expenses
6.6
Section 328(1)
Where any goods or services or any other benefit is given to the employee partly for private and partly for business use, the employee may be able to claim a deduction for the part of the cost that relates to business use, provided part or all of the expense would have been allowable under the expenses rule (see chapter 7) had the employee met it.
Assets placed at disposal of employee
6.7
Sections 205(2) and (3)
The initial cost of an asset of the kind mentioned in chapter 4 paragraph 4.3 used by an employee is not treated as remuneration if the asset remains the property of the employer or of the person making it available for the use of the employee.
In such a case the annual value of the use of the asset (or the rent or hire charge paid for it if this is greater) plus any current expenditure met by the employer or the person making the asset available, is the cost of the benefit which will count as remuneration of the employee. The annual value is taken as 20% of the market value of the asset when it was first used to provide a benefit.
Sections 205(5) and (6)
Where the asset is an emergency vehicle, the expense of providing fuel for it in a tax year is to be disregarded as an expense so long as the fuel provided is not used for the employee’s private use or, the employee has made good the expense of all private fuel on or before 6 July following the tax year.
Sections 205A
Where the asset is used for business purposes, the employee is not entitled to a deduction under the expenses rule. However, if the asset is unavailable for private use the amount treated as remuneration is reduced by multiplying the cost of the benefit by the number of days unavailable divided by the number of days in the year.
Circumstances when an asset is treated as being unavailable for private use include, if for more than 12 hours during that day the asset:
- is not in a condition fit for use
- is undergoing repair or maintenance
- could not lawfully be used
- is used in a way that’s neither ‘use by’ nor ‘use at’ the direction of the employee or a member of their family or household
An asset is also treated as unavailable for private use if on a day the employee uses the asset in the performance of the duties of their employment and does not use the asset otherwise.
As indicated in chapter 4 paragraph 4.3 different rules apply to mobile phones, vans and cars.
Living accommodation
6.8
Sections 97 and 103
As regards the provision of living accommodation for an employee and members of their family or household see chapter 21.
Assets transferred to an employee
6.9
Sections 206(2) and (3)
The rules for assets transferred to employees are different depending on whether or not the asset has depreciated or been used.
Asset transferred to a director or employee or a member of his or her family or household before the asset has depreciated or been used
The amount chargeable is the greater of:
- the expense incurred by that person in connection with the provision of the asset
- the second-hand value of the asset in the hands of the employee if it falls within the meaning of earnings in Section 62
- less any amount made good
Asset transferred to a director or employee or a member of their family or household after the asset has depreciated or been used
Where an employee (or member of the employee’s family or household) benefits from the transfer of an asset (other than a car, van, exempt bicycle or cyclist’s safety equipment – see chapter 5 – or living accommodation) at less than its market value, the benefit for tax purposes is the difference between the sum (if any) paid for the asset by the employee and so on and the higher of the market value of the asset:
- as at the date of transfer, or
- when first applied as a benefit minus any sums already taken into account in taxing benefits derived from the use of that asset
Where an asset not within the preceding paragraph (for example, a car, or something which had never been applied as a benefit) is similarly transferred and the asset has been used or has depreciated in value since its production or acquisition by the person transferring it, tax is charged on the market value of the asset at the time of transfer to the employee minus any amount paid for it by the employee.
Optional remuneration arrangements
Relevant legislation: Schedule 2 Finance Act 2017
6.10
From 6 April 2017 where a benefit is provided as part of optional remuneration arrangements the amount of the benefit treated as earnings from the employment is the greater of the:
- value of the benefit worked out under the normal rules (ignoring any amount made good)
- amount of any salary or cash pay foregone
There’s further guidance about optional remuneration arrangements in Appendix 12.
Making good
6.11
Making good is where an employee gives something (usually a cash payment) to the person providing a benefit in return for it. This has the effect of reducing the taxable value of the benefit and reduces the amount of tax and National Insurance contributions payable on the benefit.
From the 2017 to 2018 tax year, the latest date for making good is normally 6 July following the end of the tax year in which the benefit is provided if the amount made good is to be taken into account for tax and National Insurance contributions purposes.
Where the benefit is payrolled under voluntary payrolling arrangements the latest dates for making good are earlier. The latest date for making good is the final payday of the tax year in which the benefit is provided.
Exceptions to this are where the benefit is car fuel or van fuel or the use of a credit token when the employee has to make good the benefit before 1 June following the end of the tax year in which the benefit was provided.