Non-cash benefits – tax treatment for the employer

By Tolley

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

  • Non-cash benefits – tax treatment for the employer
  • Income tax and corporation tax
  • VAT treatment

Income tax and corporation tax

The treatment of benefits provided by an employer follows much the same rules for both corporation tax and income tax on trading profits.

The key point to remember is that there is no symmetry between the deduction available to the employer in computing his trading profits for income or corporation tax purposes and the cash equivalent of the benefit upon which the employee is taxed. See Example 1.

The rules on how to calculate the profits of a business for tax purposes are in ITTOIA 2005 and the equivalent rules for companies are in CTA 2009. The deductions available to the employer have generally accepted accountancy principles as their starting point.

ITTOIA 2005, s 25; CTA 2009, s 46

The two basic questions that have to be asked in connection with any item of expenditure to test whether it qualifies for a deduction in the hands of an employer are:

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