EIM21728 - Particular benefits: heating, lighting, cleaning etc. expenses of job-related living accommodation: 10% limit: example of calculating the net amount of the earnings: employee makes good part of the expense of providing the benefits:
This page is only relevant for the tax year 2015 to 2016 and earlier.
This example shows the interaction between:
- the 10% restriction and
- the calculation to determine whether an employee is in lower-paid employment.
The employee’s salary is £7,500 a year.
The employer paid a medical insurance premium of £450 in respect of the employee during the year.
The employee is entitled to a deduction of £200 for expenses within section 336 ITEPA 2003 (see EIM31620 onwards).
The employer paid £1,250 during the year for heating and lighting of the job-related living accommodation, but the employee reimbursed the employer £325 of this expense. So, the net cost to the employer was £925 (£1,250 − £325).
The calculation to see whether the employee is in lower-paid employment is:
- Salary plus medical benefit = £7,950 (£7,500 + £450)
Heating and lighting:
- Salary plus medical benefit = £7,950
- Minus deduction due under section 336 = £200
- Total = £7,750
- £7,750 × 10% = £775
- Minus amounts made good = £325
- Total = £450
£450 is less than the net cost of £925, therefore:
- Total = £8,400 (£7,950 + £450)
The total earnings before deducting the expenses of £200 are less than £8,500 so the employee is in lower-paid employment. So the medical premium and the heating and lighting are not chargeable as benefits. The amount of employment income is:
- Salary = £7,500
- Allowable expense = £200
- Employment income = £7,300
Note that when working out whether an employee is in lower-paid employment, the 10% restriction of net earnings can limit the amount to be included as a benefit.
If the employee had not made good the £325 of the employer’s expenditure on heating and lighting, he would not have been in lower-paid employment because the total emoluments would have been £8,725 (£8,400 + £325).
The amount of his employment income would have been:
- Salary plus medical benefit = £7,950 (£7,500 + £450)
- Minus deduction due under section 336 = £200
- Total = £7,750
Heating and lighting:
- £7,750 × 10% = £775
£775 is less than the net cost of £1250, therefore:
- Total = £8,525 (£7,750 + £775)