Employment Tax

Residual liability provisions

Produced by Tolley
  • 25 Oct 2021 14:12

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

  • Residual liability provisions
  • Calculating the taxable amount
  • The basic rule
  • Marginal additional cost
  • Rule where benefit is use of an asset
  • Rule where the benefit is the transfer of a used or depreciated asset
  • Scholarships
  • National Insurance
  • Salary sacrifice

Residual liability provisions

The residual liability provisions provide a means of calculating the value of a benefit provided to an employee if neither the money’s worth principle applies nor any specific computational rule applies. The benefits code rules are contained in ITEPA 2003, ss 63–220 (Pt 3, Ch 2–11) with the residual liability provisions contained in ITEPA 2003, ss 201–215 (Pt 3, Ch 10).

The range of benefits that are chargeable to tax under these provisions is very wide, including ‘a benefit or facility of any kind’ as long as it is an employment-related benefit.

A benefit is employment-related if it is provided to an employee, or to a member of their family or household, by reason of their employment.

The definitions of family and household (in ITEPA 2003, s 721) mean that a benefit may be taxable on the employee under the residual liability provisions if the benefit is provided by reason of the employment to any of the following in relation to the employee:

  1. spouse / civil partner

  2. children, or their spouses / civil partners

  3. parents

  4. dependants

  5. domestic staff

  6. guests

It does not have to be the employer who provides the benefit. For example, a pharmaceutical company might offer football match tickets to employees of a sports injury clinic. The benefit would be employment-related as the tickets are only being offered to the individuals in question because of their employment at the clinic, because the pharmaceutical company wants to nurture its relationship with the clinic and its employees to maintain or improve sales to them.

The provisions cover benefits provided throughout the tax year, even if some of them are provided before the employment actually starts or after it ends.

Calculating the taxable amount

The basic rule

The taxable amount is the ‘cash equivalent’ of the benefit. The basic rule for working out the cash equivalent is that it is the cost to the person providing the benefit (

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