Expenses and Benefits – Updated guidance in the Employment Income ManualWednesday, December 23rd, 2009
HMRC has updated the technical guidance provided for its own officers and it is available publicly on HMRC’s website for the assistance of employers and advisers. Three specific items of interest are described below and the full list of changes may be viewed at www.hmrc.gov.uk/manuals/eimanual/updates/eimupdate101209.htm.
Living accommodation exemption
Section 99(1) of ITEPA provides exemption from income tax for the provision of living accommodation for an employee if it is necessary for the proper performance of the duties that the employee live in the accommodation provided. Among the types of employee who may be accepted as being within the exemption are wardens of sheltered housing schemes living on the premises where they are on call outside normal working hours.
Changes to employment law and practice have, in a number of cases, removed the requirement for resident caretakers and resident wardens of sheltered housing schemes to be on call outside normal working hours. HMRC therefore no longer accepts that these types of employee automatically come within the Section 99(1) exemption. This change applies to resident wardens for tax years 2006/07 onwards and to resident caretakers for 2009/10 onwards.
Cycles and cycling safety equipment exemption
Section 244 of ITEPA provides exemption from income tax for the provision of a cycle or cyclist’s safety equipment, irrespective of how it is provided, as long as the specified conditions are met. The exemption has prompted the creation of “cycle-to-work” schemes, often as part of salary sacrifice arrangements. One of the key qualifying conditions is that the benefit must be generally available to all employees.
The rules governing the provision of cycles under a salary sacrifice arrangement may cast doubt on whether the “generally available” test is met.
If the salary sacrifice scheme is not open to all employees, the exemption only applies if the employer still extends the opportunity of using a loaned cycle to those who are excluded from the salary sacrifice scheme. The exemption conditions do not require cycles and related equipment to be provided under the same terms and conditions for every employee, so the exemption would still be met if those employees unable to participate in the salary sacrifice scheme are offered the use of more expensive cycles than are offered to those who can use the scheme.
The exemption conditions do not require that a cycle is provided for the sole use of each employee. Cycles may be loaned to employees from a cycle pool but, if that is done, there must be a sufficient number of cycles in the pool to ensure that there is genuine availability for all employees wishing to use a cycle with a reasonable degree of frequency.
The need for employers to enter into a regulated hire agreement with employees has caused concern that employees under age 18 could not participate in a salary sacrifice scheme. However, the guidance published by the Department for Transport has been updated to confirm that an adult may act as a guarantor for employees under age 18 wishing to participate in a scheme.
Car benefit charge
Section 122 of ITEPA allows a car provided for private use to have a “notional price” if it does not have a “list price” for the calculation of the car benefit charge. In general, it is for the employer to determine a “notional price” by using the list price of an equivalent car. In some cases, HMRC is prepared to agree a notional price for national use.
Five such notional prices have been published by HMRC for specific, mainly prototype, electric cars.
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