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HMRC internal manual

Employment Income Manual

Vouchers and credit-tokens: why special rules are needed for vouchers and credit tokens

Part 3 Chapters 1 and 4 ITEPA 2003

For 2015/16 and earlier, the goods that an employee who is in lower paid employment (see EIM20007) receives from his or her employer by virtue of the employment only count as earnings under Section 62 ITEPA 2003. The amount of earnings under Section 62 is the amount the employee could sell the goods for, their second-hand value, less anything the employee pays for them (see EIM00540).

The second-hand value of the goods may be much less than what it cost the employer to provide them. As this difference between cost and market value was being increasingly exploited, special rules applying to all employees were introduced in 1975. These rules secured a tax charge based on the full cost to the employer when goods were obtained by an employee using a voucher or credit-token.

The scope of these special rules went beyond goods. They cover the provision of goods, services or money to an employee by use of a voucher or credit-token.

The important thing to note is that where the special rules apply, the normal principles for determining the amount that counts as earnings under Section 62 at EIM00540 do not apply. The amount of the benefit must be calculated by reference to the special rules at EIM16140.

These special rules are not so important now most employees are within Part 3 Chapter 10 ITEPA 2003 (see EIM20100). There will be the same, or a similar amount of cash equivalent of the benefit whether or not something is provided directly or via a voucher or credit-token.