Income Tax (Earnings and Pensions) Act 2003 (c. 1)

Part 3 U.K. Employment income: earnings and benefits etc. treated as earnings

Chapter 10 U.K. Taxable benefits: residual liability to charge

Determination of the cost of the benefit U.K.

204 Cost of the benefit: basic rule U.K.

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

205 Cost of the benefit: asset made available without transfer U.K.

(1) The cost of an employment-related benefit (“the taxable benefit”) is determined in accordance with this section if—

(a) the benefit consists in—

(i) an asset being placed at the disposal of the employee, or at the disposal of a member of the employee’s family or household, for the employee’s or member’s use, or

(ii) an asset being used wholly or partly for the purposes of the employee or a member of the employee’s family or household, and

(b) there is no transfer of the property in the asset.

(2) The cost of the taxable benefit is the higher of—

(a) the annual value of the use of the asset, and

(b) the annual amount of the sums, if any, paid by those providing the benefit by way of rent or hire charge for the asset,

together with the amount of any additional expense.

(3) For the purposes of subsection (2), the annual value of the use of an asset is—

(a) in the case of land, its annual rental value;

(b) in any other case, 20% of the market value of the asset at the time when those providing the taxable benefit first applied the asset in the provision of an employment-related benefit (whether or not the person provided with that benefit is also the person provided with the taxable benefit).

If those providing the taxable benefit first applied the asset in the provision of an employment-related benefit before 6th April 1980, paragraph (b) is to be read as if the reference to 20% were a reference to 10%.

(4) In this section “additional expense” means the expense incurred in or in connection with provision of the taxable benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters), other than—

(a) the expense of acquiring or producing the asset incurred by the person to whom the asset belongs, and

(b) any rent or hire charge payable for the asset by those providing the asset.

206 Cost of the benefit: transfer of used or depreciated asset U.K.

(1) The cost of an employment-related benefit is determined in accordance with this section if—

(a) the benefit consists in the transfer of an asset, and

(b) the asset has been used, or has depreciated, since the person transferring the asset (“the transferor”) acquired or produced it.

(2) The cost of the benefit is the market value of the asset at the time of the transfer.

(3) But the cost of the benefit (“the current benefit”) is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if—

(a) the asset is not [F1 an excluded asset (see subsection (6))] ,

(b) the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and

(c) the transferor first applied the asset in the provision of an employment-related benefit after 5th April 1980.

(4) In this section “relevant employment-related benefit” means an employment-related benefit the cost of which was to be determined in accordance with section 205.

(5) The amount referred to in subsection (3) is calculated in accordance with the following steps—

Step 1

Determine the tax years in which the asset was applied in the provision of a relevant employment-related benefit (including, if appropriate, the current tax year).

Step 2

Determine the cost of the benefit for each of those tax years in accordance with section 205.

Step 3

Calculate the total of the amounts determined under step 2.

Step 4

Calculate the market value of the asset at the time when the transferor first applied it in the provision of an employment-related benefit.

Step 5

Deduct the total calculated under step 3 from the market value calculated under step 4.

The result is the amount referred to in subsection (3).

[F2 (6) An excluded asset is—

(a) a car (within the meaning of Chapter 6),

(b) computer equipment that has previously been applied as mentioned in subsection (3)(b) in circumstances in which the conditions set out in section 320 were met, or

(c) a cycle or cyclist's safety equipment that has previously been so applied in circumstances in which the conditions set out in section 244 were met.]

Textual Amendments

F1 Words in s. 206(3)(a) substituted (with effect in accordance with s. 17(4) of the amending Act) by Finance Act 2005 (c. 7), s. 17(2)

F2 S. 206(6) inserted (with effect in accordance with s. 17(4) of the amending Act) by Finance Act 2005 (c. 7), s. 17(3)