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03: The main types of taxable benefits

There are special rules for tax certain types of benefits in kind.

Beneficial loans

The taxable benefit of beneficial loans is the interest saved compared with the HMRC official rate (4% for 2012/13). Loans up to £5,000 are normally exempt.

Use of assets

Use of assets (such as clothes or leisure equipment) gives rise to a taxable benefit of 20% a year of the market value when the asset was first made available to the employee. There is an exemption for the provision of bicycles and associated safety equipment and for the provision of one mobile phone to an employee.

Living accommodation

Some directors and employees are provided with cheap or free living accommodation. This is taxed on its gross rateable value (estimated for new properties) or any rent paid by the employer if that is greater. To the extent that the property is worth more than £75,000, there is an additional benefit charge based on the HMRC official interest rate.

Company car

Employer provided cars are still very popular fringe benefits, although the changes to the tax rules have meant they have become less common. A car provided by an employer has a cash equivalent based on its list price when new and also the level of carbon dioxide CO2 emissions measured in grams per km.

  • There is a scale for petrol engine cars that runs from 5% of list price where emissions are 75 g/km or less up to 35% for cars with emissions of 220 g/km or more. There are separate but similar scales for diesel and other types of car engines.
  • Cars at least 15 years old and valued at £15,000 or over are taxed on the appropriate percentage of market value.
For example, the cash equivalent of a petrol or diesel car with emissions of over 220 g/km or over is 35% of its list price. So based on a list price of £40,000, the car’s cash equivalent would be £14,000, on which you would pay tax of £5,600 as a higher rate taxpayer and the employer would pay NICs of £1,932.

The cash equivalent of fuel that is provided to an employee for private use is the percentage used in the car benefit calculation of £20,200 in 2012/13.

In-house benefits

Where an employer provides benefits ‘in-house’, the tax charge is normally limited to their additional or marginal cost to the employer. Examples are:

  • Goods and services sold in the normal course of the employer’s business which are provided free or at a discount to employees.
  • Services and facilities provided in-house, such as a solicitor providing staff with free legal services.
Medical insurance

Many employers provide medical insurance covering private medical treatment for their employees and members of their family. This is a taxable benefit for P11D employees. When the employer pays the premium for a group of employees, it is apportioned between them on a reasonable basis.

The cost of medical treatment itself is taxable, if it is paid for by the employer, except when it is necessary for an employee working abroad. The cost of medical examination and screening met by an employer and carried out at the employer’s request is not taxable.Last Updated 

Tax rules are subject to change. The FCA does not regulate tax advice.