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HMRC internal manual

PAYE Manual

PAYE operation: pensioners: non-cash benefits paid to former employees and pensioners

Non-cash benefits provided to former employees before 6 April 2006 were not liable to Income Tax as the provision of non-cash benefits only did not constitute a non-approved retirement benefits scheme. The legislation covering this was changed by FA2004 and non-cash benefits are now within the definition of relevant benefits at S393B ITEPA 2003. Arrangements to provide non-cash benefits after retirement and in connection with past service now constitute an employer financed retirement benefit scheme (S393A ITEPA 2003) and the benefits provided to former employees, subject to a lower limit of £100, and with the exception of those listed below are liable to Income Tax with effect from 6 April 2006. The instructions for dealing with these cases can be found at EIM15010 to 15429. These benefits do not attract Class 1A NIC contributions.

From 6 April 2006 onwards the benefits must be taken into account when calculating liability. This can be by adjustment to the pensioner’s tax code, by means of an informal calculation or by inclusion in a Self Assessment return as other taxable income. The Return Notes of the Self Assessment return to be completed will detail the relevant box to use to report ‘other taxable income’, e.g. for 2013-14, page TR3 Box 16.

Benefits not chargeable to tax where paid to former employees are

  • Continued provision by former employers of accommodation and related removal expenses
  • Welfare counselling
  • Recreational benefits
  • Annual parties and similar functions costing up to £150
  • Equipment for disabled former employees
  • Writing of wills costing up to £150
  • Benefits which were first provided on retirement before 6 April 1998
  • Benefits not covered above costing up to £100

Lists received after 6 April 2007

On receipt of the benefit details take the following action. For more information about how to enter information on income, allowances, benefits and deductions (IABD) refer to Action guide tax40002.

If there is no SA interest

  • Input the CY-1 details in to IABD and, if necessary, trigger reconciliation

Use the under or overpayment reason ‘Other’ to explain the fact that the benefit is provided by the previous employer and is now treated as taxable income.

Where applicable input the details (use the descriptor Non Cash Benefits) in IABD for CY and CY+1 to trigger coding.

Add the note ‘Non-Cash Benefits paid to Pensioner’ in Contact History.

Retain the lists for 12 months for Quality Monitoring purposes.