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HMRC internal manual

Employment Income Manual

Particular benefits: heating, lighting, cleaning etc. expenses of job-related living accommodation: 10% limit: example of calculating the net amount of the earnings: employee makes good part of the expense of providing the benefits:

This page is only relevant for the tax year 2015 to 2016 and earlier.

This example shows the interaction between:

The employee’s salary is £7,500 a year.

The employer paid a medical insurance premium of £450 in respect of the employee during the year.

The employee is entitled to a deduction of £200 for expenses within section 336 ITEPA 2003 (see EIM31620 onwards).

The employer paid £1,250 during the year for heating and lighting of the job-related living accommodation, but the employee reimbursed the employer £325 of this expense. So the net cost to the employer was £925 (£1,250 − £325).

The calculation to see whether the employee is in lower-paid employment is:

Salary     £7,500
Medical benefit     £450
=     £7,950
Heating and lighting:      
Salary plus medical benefit £7,950    
deduction due under section 336 £200    
£7,750 × 10% =   £775  
less made good   £325  
=   £450  
£450 is less than the net cost of £925     £450
Total     £8,400

The total earnings before deducting the expenses of £200 are less than £8,500 so the employee is in lower-paid employment. So the medical premium and the heating and lighting are not chargeable as benefits. The amount of employment income is:

Salary £7,500
Allowable expenses £200
Employment income £7,300

Note that when working out whether an employee is in lower-paid employment, the 10% restriction of net earnings can limit the amount to be included as a benefit.

If the employee had not made good the £325 of the employer’s expenditure on heating and lighting, he would not have been in lower-paid employment because the total emoluments would have been £8,725 (£8,400 + £325).

The amount of his employment income would have been:

Salary £7,500
Medical benefit £450
= £7,950
less deductible expenses £200
= £7,750
Heating and lighting:  
£7,750 × 10% = £775 which is less than the net cost of £1,250 £775
Employment income £8,525