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HMRC internal manual

Employment Income Manual

The benefits code: cash equivalent of benefits: housebenefits: marginal additional expense: examples

Example 1: in-house service

An employer provides a course of lectures for the public and gives an employee a free place. The lecturer’s fee and hall hire costs are fixed and do not depend on the number of people attending the lectures.

The expense to be included in the calculation of the cash equivalent of the benefit to the employee is Nil; the employer would not have saved anything if he had not given the employee a free place so there is no marginal additional expense.

If the employer’s expenses increase as a result of the employee using the place, for instance if the lecturer’s fee is affected by the number of students or because the students are provided with refreshments then there would be a marginal additional expense.

Example 2: in-house goods

A brewer provides beer to its employees at a staff discount. The beer is of the same type and brewed at the same time as that the brewer sells normally. There is marginal additional expense to the brewer of providing the benefit to its employees.

That additional expense is:

  • the cost of the malt, hops and water in each pint
  • the excise duty paid on the employees’ beer and
  • any overhead costs which would have been saved if the employees’ beer had not been brewed and distributed, such as the heating costs of boiling that much extra wort, or extra staff and transport costs in handling the brewing and distribution processes.

If the total of those additional costs exceeds what the employees pay for the beer (see “making good” at EIM21120) then there is a chargeable benefit.