| Benefits Code I and Exemptions and Exclusions |
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15A.1 Benefits in Kind: General |
The taxation of benefits in kind raises (at least) three separate tax issues:1 is the benefit taxable under ITEPA, is it subject to PAYE and is it liable to National Insurance Contributions (NICs)?2 Today, many benefits in kind chargeable under ITEPA are also subject to PAYE3 and attract Class IA NICs; formerly, PAYE and NICs would often not be payable at all. Class IA NICs differ from the normal Class I in that there is no charge on the employee but only on the employer. This may be rationalised on the basis that many of the employees concerned are well-off and above the point at which their Class I contributions cease. It is also likely that the Government does not want to impose further burdens on employees in light of its policy not to raise tax rates. |
15A.1.1 Policy |
Benefits in kind also raise questions of policy. Thus, such benefits may tie employees to employers unduly, especially if the tax regime taxes such benefits lightly in comparison with a simple cash payment. In principle, all benefits in kind should be taxed, partly in order to satisfy requirements of equity and partly because failing to tax them properly leads to distortions. The Government’s freezes on pay, prices and dividends in the 1970s led to the increase in benefits in kind as ways of getting round those restrictions. Benefits in kind are much loved in the UK employers as motivational devices to recruit and, perhaps more importantly, to retain good staff. Incentives are used to reward high flyers or to provide incentives to improve performance. As one 1986 newspaper report put it, wives may not like husbands being pushed to reach a bonus level of £1,900, but the reward of a £1,900 video system is different.4 One employee received a demand |