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HMRC internal manual

Employment Income Manual

The benefits code: excluded employment

Section 63(2)(3) and (4) ITEPA 2003 and Sections 216 and 217 ITEPA 2003

Section 63(1) ITEPA 2003 lists the types of income included in the benefits code (EIM20006).

The complete benefits code in Chapters 3 to 10 ITEPA 2003 applies to most directors and employees, unless the employment is an “excluded employment”. In the guidance that follows, reference to an employment within the benefits code, means an employment to which the whole of the benefits code (Section 63(1)) applies, unless otherwise stated.

An excluded employment

An employment is an excluded employment (Section 63(4) and Section 216(1)) if:

  • an employee is in lower-paid employment for 2015/16 and earlier only (see below), or
  • a director (EIM20200) is in lower-paid employment for 2015/16 and earlier only and has no material interest in the company (EIM20212) and either:
    • is a full-time working director (EIM20202) or
    • the company is non-profit making (EIM20210) or is established for charitable purposes only (EIM20211).

The effect of an excluded employment is that only income in Chapter 4 (Vouchers and credit cards) and Chapter 5 (living accommodation) of the benefits code is included in earnings charged to tax as employment income (EIM00515). In other words only part of the benefits code applies to an excluded employment. Most employments are not excluded employments.

Lower-paid employment

An employment is lower-paid employment if earnings from that employment are less than £8,500 a year (Section 217(1) ITEPA 2003).

Most directors and full-time employees have earnings of at least £8,500 but in some instances, especially in part-time employment, earnings may be less than £8,500. If there is any doubt whether total earnings are less than or more than £8,500 it is necessary to calculate the precise level of earnings from the employment in order to determine whether the employment is an excluded employment and consequently if all, or only part, of the benefits code applies to that employment. See EIM20101 for guidance on calculation of the earnings for this purpose.