How employment income is taxed—non-cash earnings or benefits
How employment income is taxed—non-cash earnings or benefits

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • How employment income is taxed—non-cash earnings or benefits
  • Section 62 'money's worth' charge
  • Benefits code
  • Exemptions
  • Partial exemption for lower-paid employees/excluded employment
  • Trivial benefits exemption
  • Exemptions for deductible amounts
  • National Insurance contributions (NICs) and non-cash earnings
  • Non-cash earnings and PAYE
  • Simplifying employee benefits and expenses
  • more

In addition to cash earnings, such as wages or salaries, many reward packages include non-cash items, such as the provision of a car, health insurance or childcare. An employer might also pay certain bills on behalf of the employee, for example in respect of a home landline, or utility bills. These non-cash earnings are often referred to as benefits-in-kind or simply as benefits.

Non-cash earnings may be charged to income tax on employment income under a number of different provisions, including:

  1. the charge on earnings in section 62 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)—if the benefit constitutes money's worth

  2. specific provisions in ITEPA 2003, Part 7 relating to the provision of employment-related securities and securities options (see Practice Note: Employment-related securities—overview and the related Practice Notes)

  3. the disguised remuneration provisions in ITEPA 2003, Part 7A—which should be considered particularly if the non-cash earnings are provided through a third party rather than the employer, and

  4. the benefits code in ITEPA 2003, Part 3

The charge on earnings under ITEPA 2003, s 62 generally takes precedence over other possible charges to income tax on employment income. Where a charge would arise under both ITEPA 2003, s 62 and the benefits code in ITEPA 2003, Part 3, priority is generally given to the charge under ITEPA 2003, s 62. However, where the