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only the computer itself (including software), but also such peripherals as modems, printers, scanners, discs and similar items designed to be connected to or inserted into the computer. Telephones are not, however, included.71 The loan must not be confined to employees who are directors, nor may the terms offered to directors be more beneficial than those to other employees.72 This partial exclusion rule applies only to loans.73 |
17A.3.4 Extent of Charge: Cash Equivalent |
17A.3.4.1 Cost—The Basic Rule |
ITEPA section 203 treats the ‘cash equivalent’ of the employment related benefit as earnings and then defines that cash equivalent. The basic rule74 is that the cost of a benefit is ‘the expense incurred in or in connection with the provision of the benefit …’. The practical effect is that if the cost of the benefit is £100, and the employee, E’s, marginal rate is 40%, E will acquire the benefit (£100) but pay tax of £40. However, if E had paid for the benefit out of his own pocket, the salary would have had to be increased by £167 to give £100 net of tax with which to acquire an equivalent benefit. The reason section 203 uses this technique is to ensure consistency with section 72 (ex 153); the amount charged is the same whether E receives £100 under an expense allowance which is then spent on the object, or receives the object as a benefit in kind. This example can be criticised for failing to compare with, since the comparison is between tax of £40, leaving E with the benefit in kind, and tax of £67, leaving a benefit worth £100. |
17A.3.4.2 Cost—Marginal or Average? |
In the famous case of Pepper v Hart75 the House of Lords held that cost meant marginal cost, not average cost. Pepper v Hart concerned the provision of education at a private school (Malvern College) for a child of a member of the teaching staff. The member of staff paid a fee equal to one-fifth of the normal fee, which was more than enough to |