Meg Saksida explains the mechanics of how benefits-in-kind are taxed to income tax.
Employees in the UK are chargeable to income tax on their net taxable earnings. These earnings are made up of the employees’ cash earnings, such as their salaries, wages and any bonuses, as well as any benefits-in-kind they might receive.
Benefits-in-kind are non-cash earnings which are given to an employee in addition to their wages. Common examples are medical insurance and company cars.
The default rule
The value of the benefit is the ‘cash equivalent’ of the benefit. The cash equivalent is the amount that the benefit cost the employer, less any amounts that the employee contributed towards it. The cost to the employer may be an external cost, such as providing a membership to a club, or an internal cost, such