Contractual and pecuniary liabilities

Contractual and pecuniary liabilities

The definition of ‘earnings’ for the purposes of tax includes anything that is of direct monetary value to the employee. If an employer pays an employee’s bill or meets some other kind of liability that the employee is obliged to pay themselves (often referred to as meeting the employee’s pecuniary liability), this is of direct monetary value to the employee. This employee is assessed on the money that is used to settle their liability, and not as a benefit on what this liability relates to. A payment made on behalf of an employee can be summarised in the following diagram.

For example, where an employer settles an employee’s phone bill, the benefit is not the provision of a phone line / phone calls; it is the amount of money used to settle that bill. As such, it is taxable under ITEPA 2003, s 62.

An employer may also either arrange for goods or services to be provided to the employee, or reimburse the employee for the payment of the employee’s bill.

The payment made by the employer can be a one-off occurrence, eg settling an outstanding parking fine to prevent further proceedings being taken against the employee, or it can be a contractual agreement negotiated as part of the employment package, eg the employer may take over responsibility for paying the employee’s premiums on their existing health insurance policy. In either case, the amount paid by the employer is of direct monetary value to the