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HMRC internal manual

Employment Income Manual

Particular benefits: discounts

Section 203(2) ITEPA 2003

An employer may allow its employees to buy goods or services from the company at a discount. This is a benefit to the employee. However if the discounted amount the employee pays exceeds the expense incurred by the employer in providing the goods or services the cash equivalent of the benefit will be nil. This is because the employee has made good more than the expense of provision of the benefit.

The expense of provision of the benefit includes the cost to the employer of the production or acquisition of the goods or services concerned, together with a proportion of any overhead expenses directly related to that production or acquisition. The expense also includes any taxes or duties paid by the employer in respect of the goods or services.

If the expense of provision exceeds the discounted price paid, the chargeable earnings arising to a director or employee, except for 2015/16 and earlier one in an excluded employment (see EIM20007), should be calculated in accordance with EIM21646.

Even if there is no charge under the benefits code, a charge may arise under Section 62 ITEPA 2003 if the “second hand” value of what the employee buys exceeds the discounted price paid (see EIM01090).