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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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The benefits code: apportionment of the cash equivalent of the benefit

Section 204 ITEPA 2003

Section 204 provides for “a proper proportion of any expense relating partly to provision of the benefit and partly to other matters” to be taken into account in arriving at the “cash equivalent”.

This enables the expense incurred in providing a benefit to be apportioned. For example, apportionment of the annual “cash equivalent” is normally justifiable where a benefit in kind is:

  • shared between several directors or employees, or
  • shared between a number of individuals only some of whom are directors or employees, or
  • used partly for the purposes of the employer’s business and partly in providing a benefit to a director or employee (where a benefit is provided to a director or employee to perform the duties of his employment it remains a benefit and not an “other matter to be apportioned. The director or employee is entitled to a deduction under Section 365 ITEPA if all or part of his use of the benefit relates to use for business purposes – see EIM21637 – but this does not affect the calculation of the cash equivalent of the benefit. All use by the director or employee remains a benefit, whether that use is for business or private reasons.), or
  • provided only for part of a tax year.

If you have to apportion a benefit, do so on common sense lines based on the facts of the case. For instance, if three directors share a benefit equally between them throughout a tax year, charge a benefit on each director on one-third of the full “cash equivalent” for that year. Do not contend that each of the directors is chargeable on the full “cash equivalent” so as to get tax on three times the full value of the benefit.

See EIM21201 for more detail on apportionment. See EIM21638 for an example of apportionment when an asset is placed at the disposal of a director.