Employment Tax

Taxation of non-cash payments

Produced by Tolley in association with Sue El Hachmi of Osborne Clarke LLP
  • 10 Dec 2021 11:51

The following Employment Tax guidance note Produced by Tolley in association with Sue El Hachmi of Osborne Clarke LLP provides comprehensive and up to date tax information covering:

  • Taxation of non-cash payments
  • Benefits code
  • Income tax
  • National Insurance contributions (NIC)
  • Reporting
  • Employer
  • Employee

Taxation of non-cash payments

Termination packages often include both cash and non-cash payments. See the Taxation of cash payments guidance note for information on the taxation of cash payments.

Subject to reliefs and exemptions, non-cash benefits provided on or after termination are taxed under ITEPA 2003, s 401. Any taxable benefits arising before termination are taxed under the benefits code (ITEPA 2003, ss 63–69B).

It is common for non-cash benefits provided to employees during employment to continue beyond the date of termination. Benefits that straddle the termination are apportioned on a time basis, those falling after termination being taxed under ITEPA 2003, s 401 and those before taxed under the benefits code.

Non-cash benefits are valued on the cash equivalent of the benefit.

The cash equivalent is the greater of:

  1. the amount that would be chargeable under ITEPA 2003, s 62 if the benefit were earnings. The amount is based on ‘money’s worth’ and will be its direct monetary value or the value it is capable of being turned into ― the second-hand value.

  2. the cash equivalent as defined through the benefits code

ITEPA 2003, s 415(2)

A comparison of the two values can be relevant when assets are transferred to the terminating employee as these will have ‘money’s worth’ under ITEPA 2003, s 62. The rules for transferred assets in the benefits code are set out in ITEPA 2003, ss 201–215 (the residual liability to charge). These rules cover a number of different situations depending on whether the asset is new or used. In most

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