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HMRC internal manual

Employment Income Manual

Value Added Tax: inter-relation with earnings and expenses: VAT and benefits in kind


An employee who receives earnings in the form of goods or assets will be chargeable:

  • on the second-hand value as earnings within Section 62 ITEPA 2003 (see EIM00540) or
  • on the greater of that second-hand value or the cost of the provision of the asset calculated as at EIM21641 onwards (only if the employee is not in lower paid employment for 2015/16 and earlier).

VAT will not directly enter into the calculation of second-hand value. But it may affect that value because a new item of the same type may well attract VAT. If it does,that will inevitably influence the second-hand value of the item in question.

Where the chargeable benefit is based on the cost of providing an asset, the full amount of the expenditure including VAT should be taken into account even if the employer or provider may subsequently recover all or part of the VAT by set-off or by repayment.