Policy paper

Assets made available to employees without transfer

Published 5 December 2016

Who is likely to be affected

Employees, or their families, who, by reason of their employment, are provided with an asset that is available for their private use, and employers who have to account for National Insurance as a result.

General description of the measure

The measure introduces rules for calculating the taxable value (cash equivalent) of an asset provided to an employee or a member of their family or household which is available for their private use. The rules will allow for days when the asset is unavailable for private use to be ignored for the purposes of calculating the cash equivalent under certain circumstances. These rules will apply only to assets which do not currently have specific charging provisions elsewhere in the legislation.

Policy objective

On the strict statutory interpretation of the current legislation, employees should be taxed as if the asset were available to them for the entire year even if, for example, it is only made available for part of the year or it is shared with another employee. This leads to unfair outcomes which cannot be corrected simply by publishing guidance.

This measure will introduce in Finance Bill 2017 legislation setting out more detailed rules for calculating the cash equivalent which will allow adjustments for days when the asset is not available for the employee’s private use. These supersede the arrangements set out in current HM Revenue and Customs (HMRC) guidance which are not supported by legislation. By setting out detailed rules in legislation, the government is providing clarity for both employees and employers.

Background to the measure

The decision to set out more detailed provisions on calculating the cash equivalent of the benefit of an asset has not been previously announced. Previous guidance based on apportionment of the use of assets is set out in the Employment Income Manual at EIM21639.

Detailed proposal

Operative date

The measure will have effect on and after 6 April 2017.

Current law

The current provisions for computing the cash equivalent of an asset is set out in section 205 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003.

Proposed revisions

Legislation will be introduced in Finance Bill 2017 to make changes to Chapter 10 of Part 3 of ITEPA to introduce specific rules for computing the cash equivalent of an asset that is made available to an employee for private use. Setting the cash equivalent of an asset by its availability for private use appears elsewhere in the benefits legislation and is well understood.

The overarching rule that if the asset is made available for private use the cash equivalent is set at 20% of the market value when the asset was first provided plus the amount of any additional expense will remain. The legislation will introduce new rules allowing the cash equivalent to be reduced for days when the asset is not available for private use and there are also rules to reduce the level of the taxable benefit when the asset is made available to more than one employee for their private use in the same tax year.

This measure will also allow for the reduction in the level of the taxable benefit if the asset is first made available part way through the year or permanently ceases to be available part way through the year.

Worked example

A company buys a painting for £5,000 and insures it for £250.

For the first 3 months the painting is displayed in the home of Director A before going on loan to a contemporary art exhibition at a local gallery for 5 months. It is then displayed in the company’s offices for 2 months before going to Director B’s house for the final 2 months of the year.

The annual cost of the asset would be (20% x £5,000) + £250 = £1,250.

The painting is available for 150 days of the year. So the cash equivalent is calculated as 150/365 x £1,250 = £513.

The rules would provide for the cash equivalent of the benefit to be shared on a just and reasonable basis between the two directors, so we would expect the benefit charge for Director A to be £307 and that for Director B to be £205 rounded to the nearest pound.

Summary of impacts

Exchequer impact (£m)

2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022
- negligible negligible negligible negligible negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is not expected to have any significant impacts on individuals, households and families.

Equalities impacts

This measure partially legislates existing HMRC practice, including measures that enable individuals to reduce the charge on the benefit in certain circumstances. HMRC considers that it has no impacts, taking due regard for equality to comply with section 149 of Equality Act 2010 and relevant Northern Ireland impacts.

Impact on business including civil society organisations

Businesses or civil society organisations that make assets available to employees for their private use may be able to reduce the taxable value for periods when the asset is not available for private use. Confirming how this should be done in the legislation will provide clarity for employers and employees. This measure is expected to have a negligible impact on business administrative burdens. Affected businesses will incur one-off costs of familiarisation with the new rules. On-going costs include performing the calculation to determine the taxable value of assets.

Operational impact (£m) (HMRC or other)

This measure will have initial Information Technology costs for HMRC in the region of £6,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Employment Income team on email: employmentincome.policy@hmrc.gsi.gov.uk.