The measure
Legislation will be amended to clarify that the concept of 'fair bargain' should not apply to certain benefits in kind. 'Fair bargain' applies where an employee has received goods or services from their employer at exactly the same cost, terms and conditions as a member of the public on arms-length terms. Where this applies there is no taxable benefit.
The government maintains that the concept cannot apply to living accommodation, company cars and vans and beneficial loans and is legislating to put this beyond doubt. These are benefits that have their own specific rules for calculating the taxable amount, compared to other benefits which are taxed based on the cost to the employer. Here there is only a 'fair bargain' where the employee bears at least the cost to the employer.
Who will be affected?
The measure affects employers who provide benefits to their employees who then pay for the benefit, where the taxable value is determined by specific charging rules other than cost of providing the benefit.
There will be a carve-out for employers that trade in the provision of hire cars to the public. In the circumstances where the employee hires a car from the employer at the same cost and under the same terms and conditions as any member of the public, there will not be a benefit in kind charge.
When?
The amendments to the legislation are considered a clarification rather than a change in the substantive tax treatment.
Our view
Employers who rely on fair bargain to reduce the taxable benefit reportable for their employees will have to review the scale of the taxable benefits that they are reporting.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
