Cost to provider and money’s worth

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Cost to provider and money’s worth
  • Money’s worth
  • Cost to provider
  • Amounts paid by the employee towards the benefit
  • Interaction with other rules in the benefits code
  • National Insurance

There are two general methods that apply to the calculation of the taxable value of benefits in kind in the absence of specific rules such as scale charges or set methods of calculation in the legislation. These general methods are ‘cost to the employer’ and ‘money’s worth’.

Money’s worth

This rule was developed before the benefits code (in ITEPA 2003) was written. Case law (see Wilkins v Rogerson) established that an employee should be taxed on the ‘money’s worth’ of the item in question. This was the amount that the employee could realise from the benefit in question. In other words, ‘money’s worth’ is generally the second-hand value of the benefit.

Wilkins v Rogerson [1960] 39 TC 344 (subscription sensitive)

This method of valuing benefits looks at the value of the benefit in the hands of the employee. It is still valid today, but most items that may be provided to employees now come under the provisions of the benefits code which takes precedence for all practical purposes and also applies to a wider range of items than simply those which have ‘money’s worth’ in the hands of the employee.

More on Benefits — general principles: