Rules for valuing benefits in kind
Unless listed below, the value of the benefit is the total costs, directly or indirectly, that are incurred by the employer for the provision of the benefit.
Some benefits in kind are specifically exempted.
Exemptions from benefits in kind
Calculating vehicle benefit in kind
Step 1: Calculate the value
To calculate the value for a vehicle purchased by the employer:
- if the vehicle was purchased in the year of assessment the value is the open market cost of acquisition
- If the vehicle was purchased before the year of assessment the value is reduced by 20% for each year, on a reducing balance basis, following the year of acquisition but not including the first year of the benefit
To calculate the value for a vehicle leased or hired by the employer:
- the total of all the costs incurred by the employer in the year for that vehicle
Step 2: Work out the business usage by the employee
To work out the business usage, divide the mileage that the employee uses the vehicle to carry out their employment duties by the total mileage for the year. Business mileage must not include any travel to and from work. Multiply the result by 100 to give a percentage.
You must keep records of business usage.
Keeping records for benefits in kind
Step 3: Calculate the benefit
To calculate the vehicle benefit in kind, use the value of the vehicle from step 1 and the business usage from step 2 with the table below:
|Owned motor vehicle||5% of the value||20% of the value|
|Leased motor vehicle||25% of the value||100% of the value|
|Owned boat, aircraft or helicopter with an open market value of £200,000 or less||5% of the value||20% of the value|
|Leased boat, aircraft or helicopter with an open market value of £200,000 or less||25% of the value||100% of the value|
Owned boat, aircraft or helicopter with an open market value of more than £200,000
|1% of the value||4% of the value|
Vehicles which are used for both chargeable and exempt purposes
If a vehicle is not exempted, but is partly used solely for an employee's duties, the benefit in kind charge will be reduced proportionately.
An employee on 24 hour call one week out of four, will have their chargeable benefit reduced by 25%.
Allowance paid to lease a vehicle
If an employer pays an allowance to an employee so that the employee can lease a vehicle themselves then that allowance is not a benefit in kind, but forms part of the employees salary and must be declared as such.
Provision of fuel
If an employee is provided with fuel this is a chargeable benefit, but subject to a deduction in respect of any used for business mileage. However, if the employee reimburses the employer with the full cost of the fuel used for private purposes there is no taxable benefit in kind.
The additional cost of converting a company car to run on alternative fuels are not taken into account when calculating benefit in kind. This includes any premium on the price of a car manufactured or converted by the manufacturer to run on alternative fuel.
Calculating accommodation benefit in kind
To calculate the benefit in kind on accommodation:
20% of the employee's salary (all emoluments including bonuses, fees, and commissions but disregarding any other benefits in kind) for the period the accommodation is used, less any employees contributions.
15% of the employee's salary (all emoluments including bonuses, fees and commissions but disregarding any other benefits in kind) for the period the accommodation is used, less any employees contributions.
Alternatively, the benefit in kind can be the open market rental value of the accommodation, less any employees contributions. We will need satisfactory evidence of the valuation before the market value is used.
Payment of utility bills
If the employer pays or reimburses the employee any bills relating to the accommodation this is an additional benefit in kind. The only exception to this is if the accommodation is a sub-divided dwelling owned or leased by the employer, for example hotel workers living in the hotel where they are employed.
If the employee pays the utility bills or reimburses the employer, these amounts are not treated as a contribution towards the benefit.
If two people living together in a relationship are both employees of the same company the benefit in kind is worked out on the salary (emoluments) of the higher earner.
A benefit in kind can arise from schemes which award shares or options to buy shares at less than their market value. However, the terms of these schemes are often varied and complex. Therefore, the employer should write in and provide:
- a copy of the scheme rules
- their interpretation of the tax consequences of the scheme
We will then provide a tax ruling on the share scheme.
Calculating the benefit in kind for share options
Share options are taxed on the employee in the year the option is granted.
The value of the option (the discount the employee receives) is calculated as follows:
N × (MV - EP)
- N is the number of shares
- MV is the market value (the mid price of the shares on the date the option is granted)
- EP is the exercise price (the price that the employee is allowed to purchase the shares)
If the employee can not sell the shares for a period of 3 years or more the value of the option is reduced:
- 3 years, 30%
- 4 years, 40%
- 5 years or more, 50%
There is no reduction for an option with an exercise period of less than 3 years.
Bonus awards and free shares
If the share award scheme provides for a bonus or free shares, these are taxable so need to be reported.
Dividends from share options
If a dividend is paid to the employee it is their responsibility to declare this income.
Exercising the share option
There are no tax implications when the employee exercises the option (sells the shares) as there is no capital gains tax in Jersey. There is also no adjustment to the benefit in kind if the employee does not, or is prevented from, exercising their share options.
Benefit in kind changed in the year
If there is a change of benefit or a new benefit, then the annual benefit in kind is proportioned for the period.
An owned car has a calculated annual benefit of £7,000. This car is then replaced in October with a new car for which the annual calculated benefit is £10,000. The annual benefit in kind is therefore (£7,000 / 12 × 9) + (£10,000 / 12 × 3) = £7,750.
If the employee contributes towards the cost of a benefit, these contributions are deducted from the calculated benefit in kind.
An owned car has a calculated benefit of £10,000, but the employee makes a yearly contribution of £2,000. Therefore the annual benefit in kind is £8,000.
Employee contributions in relation to the provision of benefits still form part of their gross taxable pay.
Employers who want to pay all the tax on any benefits in kind instead of the employees being individually taxed may do so in accordance with concession P16.
Concession and practice personal tax