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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: benefits of direct monetary value to the employee: employer paying employee's debt: the pecuniary liability principle

Section 62(3)(a) 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 of direct monetary value to the employee (see EIM00530).

An example of this is where the employer pays a debt that the employee owes to a third party. This is often called the pecuniary liability principle. The employer’s payment is of direct monetary value to the employee because he or she no longer has to pay that amount of money to the third party. It therefore counts as money’s worth under Section 62(3)(a) ITEPA 2003. It will be taxable as earnings if it comes from the employment (see EIM00600).

An employer discharges an employee’s debt when he or she pays a bill for goods or services direct which in law is the liability of the employee. The employer bears the employee’s pecuniary liability. It does not matter for tax purposes whether the employer makes the payment voluntarily or under a contract.

For example, if an employee has signed the application form for the supply of electricity or gas to her home, the employee is the customer and she will be the person who is billed. If the employer pays the bills for the employee the employer is discharging the employee’s debt.

The principle was applied in the following cases in respect of the expenses shown.

Circumstance  
  Tax case
   
   
Employee’s income tax Hartland v Diggines (10TC246)
Employee’s rates, lighting, heating and other costs Nicoll v Austin (19TC351)
Cost of employee’s petrol Richardson v Worrall (58TC642)

As regards:
 

  • cases where the employer pays the employee’s council tax, see EIM00585
  • the operation of PAYE in pecuniary liability cases, see EIM00590.