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HMRC internal manual

Employment Income Manual

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Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: benefits capable of being surrendered to the employer for money

Section 62(3)(b) ITEPA 2003

A benefit counts as earnings under Section 62 ITEPA 2003 if it is money’s worth. Money’s worth includes things that are capable of being converted into money, or something of direct monetary value to the employee (see EIM00530).

The most common way that an employee can turn a benefit in kind into money is by selling it (see EIM00540). But that is not the only way. The employee may be able to rent, or hire, the benefit to other people. Or they may have the right, at any time, to give up the benefit altogether in return for a higher cash wage, or salary. In that case, the amount taxable as earnings under Section 62 is the amount of the wage or salary that would be paid in lieu of the benefit. Note though that the benefit is still a benefit in kind. It is not a cash payment, so the employer is not obliged to operate PAYE.

In Heaton v Bell (46TC211) an employee was provided with the use of a car by his employer, but an agreed sum was deducted from his wages for that use. He could give up the right to use the car at any time, with the result that the wage he received would be increased. It was held that the use of the car was an emolument, or earnings, chargeable under what is now Section 62. It could be turned into money by surrendering it.

Nowadays, unless the employee is lower paid, the car benefit charge under Sections 120 to 148 ITEPA 2003 takes precedence over any potential ‘Heaton v Bell’ charge under Section 62, because of the anti-avoidance provision in Section 119 (see EIM23050). Paragraph 4 Schedule 14 Finance Act 2004 extended the application of Section 119 to include vans with effect from 2005-06. There is a similar provision in Section 64 as regards the provision of living accommodation.