Policy paper

Statement of Practice 6 (1985)

Published 29 July 1985

Award of goods or services provided via vouchers

1. Incentive scheme awards are often provided by way of vouchers. ITEPA 2003 s 87 [formerly TA 1988 s 141] treats as earnings a benefit an employee can obtain with a voucher provided for him by reason of his employment. The measure of the earnings is the “expense incurred by the person providing the voucher in or in connection with the provision of the voucher and the money, goods or services for which it is capable of being exchanged” (ITEPA 2003 s 87 [formerly TA 1988 s 141(1)]).

2. It is not always easy to decide which incentive scheme expenses beyond the direct cost of buying the goods or services provided for the employee have been incurred “in connection with” the voucher and the benefit it provides. In general, the expenses which should be included in the emoluments calculation are those which contribute more or less directly to the advantage enjoyed by the employee. Remoter expenses—for example, the cost of devising and planning an incentive scheme under which vouchers are to be distributed—need not be included. More details are given below.

3. (a) Expenses included in the computation of emoluments:

• (i) cost of buying the goods or providing services
• (ii) cost of selecting and testing those goods or services
• (iii) cost of storing, distributing and installing the goods or, if appropriate, services
• (iv) cost of servicing and other ‘after sales’ expenses
• (v) where a third party is used to distribute the awards or to run an incentive campaign, his fees for handling functions within (i) to (iv) above

(b) Expenses excluded from the computation of emoluments:

• (i) cost of management time in considering whether or not to launch a scheme involving the provision of vouchers
• (ii) cost of researching, devising and planning such a scheme
• (iii) cost of preparing and printing promotional material relating to the provision of the voucher
• (iv) cost of administration (including the costs of meeting the HM Revenue and Customs’ (HMRC) requirements) except for the functions covered in (a) above
• (v) where a third party is involved, as in (a)(v) above, his fees for handling functions within (b)(i) to (iv) above

Retail vouchers

4. Awards sometimes consist of vouchers which are exchangeable for goods etc at retail shops or stores. Generally, the costs set out in para 3(a)(i) to (iv) above will largely consist of the price paid to the shop etc for the vouchers. The cost of distributing the vouchers to award winners and the fees of any third party within para 3(a)(v) will also need to be included.

Other benefits

5. The computation of the benefit of incentive awards assessable under Income Tax (Earnings and Pensions) Act 2003 ss 94, 203 (formerly Taxes Act 1988 ss 142, 144, 154) will follow broadly similar principles.

Computations

6. When agreeing the assessable benefit of awards made under incentive schemes the total costs should be analysed between the headings in paras 3(a) and (b) above.

Taxed award scheme

7. On 2 November 1984 a press release announced voluntary arrangements for collecting tax at the basic rate on non-cash incentive prizes awarded to employees. On 18 January 1990 a press release announced the arrangements had been extended to cover higher rate liabilities. These arrangements are known as ‘taxed award schemes’. The approach described above will apply to awards dealt with under such arrangements as well as to all other incentive awards. The Incentive Award Unit will continue to deal with all applications for taxed award schemes and will agree the amounts to be treated as emoluments. Awards under other schemes will be dealt with by the tax office which normally handles the Pay As You Earn scheme of the provider of the award. Further details of taxed award schemes may be obtained from:

HM Revenue & Customs Local Compliance
Specialist Employer Compliance
SO794
PO Box 3900
Glasgow
G70 6AA

Telephone: 03000 577340
Email: Incentive Award Unit

Press releases etc

Inland Revenue 18 January 1990 (employers may also meet an employee’s higher rate liability, in addition to basic rate liability, under a taxed award scheme).

Note: this statement is as it appears in HMRC’s Statements of Practice (March 2009).