BAIBF 09011

Business Taxation

SUBMITTED BY

MANU VARGHESE
 TAXABLE BENEFITS
A taxable benefit is a benefit provided to an employee that the employer has to add to the
employee’s income each period to determine the total amount of income that is subject to
source tax deductions. A benefit is defined as paying for or providing an employee (or close
relative of the employee) something personal in nature. It may be in the form of a
reimbursement, an allowance, or the free use of property, goods or services that you own.
Special rules apply to fix the taxable value of certain benefits. the taxable benefits includes
vouchers, living and accommodation, motor car as a benefit, fuel as benefits, beneficial loan,
also there is exempted benefits like reimbursed expenses, entertainment provided to the
employees, gift of goods.

1. Accommodation
Generally, if you’re provided with accommodation either rent-free or for a rent which is
below market rent, the difference between the rent you pay, if any, and the annual value of
the property is taxable.

Annual value
is usually taken to be the same as gross rateable value. It does not matter whether you are
lower-paid or not – the benefit is taxable.
An extra charge will be made if the accommodation cost more than £75,000 when it was
bought by the employer.

Exceptions
There are three exceptions to this rule. No tax will have to be paid on the accommodation if:
 it is necessary for you to live in the accommodation to perform your duties properly,
for example, if you are a school caretaker, or
 it is provided so that you can perform your duties better than you could without it and
it is customary in that type of employment to have accommodation provided, for
example, if you are a police officer, or
 the job involves a special security risk and special accommodation is provided for
your safety, for example, if you are in the armed forces.

Lighting or heating
Additional benefits, for example, heating or lighting provided with the accommodation are
usually taxable for employees in lower-paid employment even if one of the three
exceptions applies. However, they are not taxable if the amount you get for them does not
exceed 10 per cent of your net earnings.

Council tax/rates, water and sewerage charges

Where your employer pays your council tax (rates in Northern Ireland), water or sewerage
charges, you will have to pay tax on them. But you will not have to pay tax if one of the three
exceptionsapplies.

Hotels and temporary accommodation

The cost of hotels and temporary accommodation while travelling for business purposes is
not taxed. However, if you are given an overall cash allowance to cover these costs, this will
be taxed, but anything you spend on accommodation for the purpose of your job can be
deducted from your taxable income, as a tax relief.

2. Motor Car as a benefit

Tax is payable on a company car if it is available for private use by an employee, company
director or their family or household. In nearly all cases, private use includes journeys
between home and work. The tax charge is lower for cheaper cars, cars with lower C02
emissions and cars that can run on alternative fuels. There is no tax charge if the car is
powered only by electricity.

Cars are also not taxable if:

 they are provided only for business, and
 they are not available for private use, and
 they are not actually used privately.

Rules applicable for the computation of motor car as a benefit

 The starting point for calculating a car benefit is the list price of the car (plus
accessories).
 The percentage of the list price that is taxable depends on the car's CO2 emissions.
 For cars that emit CO2 of 95 g/km, the taxable benefit is 16% of the car's list price.
 This percentage increases by 1% for every 5g/km (rounded down to the nearest
multiple of 5) by which CO2 emissions exceed 95g/km up to a maximum of 37%.
 Therefore the 16% rate also applies to cars with emissions between 96g/km and
99g/km as these are rounded down to 95g /km. Then, for cars with emissions between
100g/km and 104g/km, the relevant percentage will be 16 + ((100 – 95)/5) = 17% etc.
 The CO2 baseline figure of 95g/km and the baseline percentage of 16% will be given
to you in the tax rates
.
 For cars that emit CO2 between 76g/km and 94g/km, the taxable benefit is 15% of the
car's list price.
 For cars that emit CO2 between 51g/km and 75g/km, the taxable benefit is 11% of the
car's list price.
 For cars that emit CO2 of 50 g/km or less, the taxable benefit is 7% of the car's list
price.

 Diesel cars have a supplement of 3% of the car's list price added to the taxable
benefit. The maximum percentage, however, remains 37% of the list price

3. Fuel for cars

Where fuel is provided there is a further benefit in addition to the car benefit.
No taxable benefit arises where either
(a) All the fuel provided was made available only for business travel, or
(b) The employee is required to make good, and has made good, the whole of the cost of any
fuel.

Provided for his private use

The same % multiplied by £22,200 determines the benefit where private fuel is also provided.
Unlike most benefits, a reimbursement of only part of the cost of the fuel available for private
use does not reduce the benefit.

Reductions in the benefit

 The fuel benefit is reduced in the same way as the car benefit if the car is not available
for 30 days or more.
 The fuel benefit is also reduced if private fuel is not available for part of a tax year.
 However, if private fuel later becomes available in the same tax year, the reduction is
not made.

4. Beneficial loans
Cheap loans are charged to tax on the difference between the official rate of interest and any
interest paid by the employee.
Calculating the interest benefit

There are two alternative methods.

 The 'average' method averages the balances at the beginning and end of the tax year
and applies the official rate of interest to this average. If the loan was not in existence
throughout the tax year only the number of complete tax months (from the 6th of the
month) for which it existed are taken into account.
 The 'strict' method is to compute interest at the official rate on the actual amount
outstanding on a daily basis.

5. Private use of other assets

20% of the value of assets made available for private use is taxable. When assets are made
available for private use to employees or members of their family or household, the taxable
benefit is the higher of 20% of the market value when first provided as a benefit to any
employee and the rent paid by the employer. The 20% charge is time-apportioned when the
asset is provided for only part of the year. The charge after any time apportionment is
reduced by any contribution made by the employee.
Private use benefit rules
If an asset made available is of:
 The current market value minus the price paid by the employee
 The market value when first provided minus any amounts already taxed (ignoring
contributions by the employee) minus the price paid by the employee
 6. Childcare
Workplace childcare is an exempt benefit exempt up to £55 per week. Maximum tax relief is
limited to £11 per week (the equivalent of £55 * 20%).

Employer Provided Childcare

Interestingly enough, there is no taxable benefit in the hands of the employee in cases where:
 the employer establishes an in-house childcare facility or leases space to provide a
childcare facility off premises,
 the employer pays for all operating expenses of that facility and
 the facility is available to all employees either free of charge or for a minimal fee.
The childcare facility must be available to all employees and not just to a group such as
management and, furthermore, all parents using the centre must be charged the same
discounted fees.
Workplace childcare centres often result in significant costs to employers. Even though these
costs are deductible from business income the employer costs are often perceived to exceed
the benefits of providing subsidized workplace childcare. Consequently, employer subsidized
workplace childcare centres tend to be few and far between and the generous tax provisions
available to employees are rarely taken advantage of.

7. Vouchers
If you get vouchers, including cheque vouchers which are exchangeable for goods and
services, you will be taxed on the cost to your employer of providing the voucher and these
goods and services. Childcare vouchers are an exception. Cash vouchers, such as Holiday
Stamp schemes used in the building industry, are subject to tax in all cases. If the voucher can
be exchanged for cash, the tax will generally be paid through PAYE, that is, it will be
deducted from your pay, as if it were a payment of cash.