Schedule 7 of the act describes the tax treatment of specific taxable benefits provided to employees and/or their families, including:
In addition, the act includes a “catch-all” provision for benefits not specifically covered under the legislation. Employment-related benefits received by prospective or former employees are included by the legislation.
Benefits received by an employee of less than £250 in a year of assessment are not taxable. Employers may apply for a dispensation from the Commissioner of Income Tax, and as part of this, opt to pay the tax on benefits on behalf of the employee. If an employer is paying the tax under a dispensation, the benefits received by an employee between £250 and £15,000 in the year of assessment are taxed at the rate of 20%. If the benefits exceed £15,000, then tax is payable at the rate of 29%.
Living accommodation provided to employees or a member of their family or household is a taxable benefit. However, the benefit is exempt in the following circumstances:
In this case, the exemption applies for seven years from the date of relocation.
Cars and vans provided by an employer to an employee or any member of their family or household is a taxable benefit if made available for their private use. The cash benefit is calculated as 25% p.a. of the purchase cost of the vehicle to the employer. After four years, there is no remaining benefit. There are separate rules relating to the provision of fuel by employers. Tax is payable on the cash benefit.
Where a car is shared between employees for their private use, the taxable benefit on each employee is apportioned on a “just and reasonable basis.”
There is an exemption for “pooled cars.” These are cars:
Motorcycles and scooters provided for employees are specifically excluded from being a benefit in kind.
If a loan is made by an employer to an employee or a relative of an employee, this is treated as a cheap loan if there is no interest payable, or if the interest payable is below what would be charged on the open market by a bank or building society. The tax benefit is the difference between any interest payable by the employee and the interest that would be payable at the market rate.
“Employer” as stated above, extends to various parties connected to the employer, for example, a company controlled by the employer or a person with a material interest in the employer.
No taxable benefit arises on advances to cover necessary expenses, where the amount on all such advances in the year never exceeds £1,000, the advance is spent within six months and the employee accounts for the expenditure to the employer at regular intervals. If an employee-related loan is written off or released, it is treated as earnings.
The Income Tax Act 2010 previously contained specific provisions relating to loans to directors, to the effect that such loans were treated as a taxable benefit-in-kind irrespective of whether any interest is charged or not. In 2015, the legislation was amended to remove this provision with effect from 1 July 2014; now loans to directors are treated the same as loans to other employees.
There is provision elsewhere in the Income Tax Act to treat loans to shareholders as if they were dividends (see Section 5.3.12) in the event that such loans are not already taxed as a benefit in kind.
There are a range of expenses connected with relocation that are specifically excluded from being treated as a benefit in kind, for example, expenses in connection with the purchase or disposal of property, costs of transporting belongings, traveling and subsistence.
In order to qualify for such exclusion, the following conditions must be met: