My VIP Tax Team question of the week: Employees and Air Miles
The Library

Tax, VAT & HR Articles

My VIP Tax Team question of the week: Employees and Air Miles

  1. Home
  2. Resources
  3. The Library
  4. My VIP Tax Team question of the week: Employees and Air Miles
Our client is a limited company. The director and the employees have company credit cards that they use to purchase goods on behalf of the company. The company credit card generates air miles. If the airmiles are given to the director/employees, would this be classed as a benefit in kind (BIK)?

If there is a BIK, how is the BIK valued?

As per Section 204 Income Tax (Earnings and Pensions) Act 2003, the BIK would be the expense incurred in or in connection with the provision of the benefit.

In other words, the BIK would be the cost of the provision – the cost to the employer on providing the airmiles.

So, if the co was purchasing airmiles and then giving them to the director/employee, there would be a BIK. The BIK would be the cost to the employer of purchasing those airmiles.

If, on the other hand, the director/employee is using the company credit card to buy goods or services, pay for business journeys etc on behalf of the company and as a result of this they just happen to be awarded airmiles when they buy those goods/services, there is no cost to the employer on the provision of the airmiles awarded in this way and therefore, no BIK. The employer is not purchasing the airmiles. The airmiles would not have cost the employer anything. The company has not paid for the airmiles, the company has paid for the goods/services.

For example, the company installs fence panels for its customers. The employee uses the company credit card to purchase the fence panels from a timber merchant and they just happen to be awarded airmiles when they buy those fence panels. There is no cost to the employer on the provision of those airmiles, as the company has purchased fence panels, not airmiles.

If the employer had to pay anything for the actual use of the airmiles on non-business journeys, the BIK would be the cost to the employer.

To summarise:

is there a cost to the employer on acquiring the airmiles? If yes, that is a BIK

is there a cost to the employer for the employee using those airmiles on a private journey? If yes, that is a BIK.

The exact tax and NIC treatment would depend on the facts of the particular case. Contact us if you wish to discuss.

HMRCs guidance can be found in the Employment Income Manual at

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21618

The legislation is at

https://library.croneri.co.uk/cch_uk/btl/itep2003-it-s-204

 

Please share this article with your clients

Back to Community
mm

Payroll Advisor
0844 892 2470

Vanessa joined Croner-i as a Payroll Adviser on the tax consultancy advice lines in October 2019. In the 30 years prior to joining Croner-i Vanessa worked for HMRC. She began her career with HMRC in the processing/service office. Then from 2001 to 2019 Vanessa was an Employer and Contractor Duties Compliance Caseworker within the Small and Medium Enterprises team. Vanessa visited a wide range of employers and contractors to check that they were meeting their tax and National Insurance (NIC) obligations with regard to payroll, Real Time Information (RTI), P11D expenses and benefits and the Construction Industry Scheme (CIS). Following those visits Vanessa issued contract settlements, formal assessments, interest, late filing penalties and penalties for incorrect returns. Vanessa also dealt with IR35 and employment status.

, , ,
0
0
My VIP Tax Team question of the week: Employee Homeworking Expenses
My VIP Tax Team question of the week: Director’s Loan Account: Bed & Breakfasting arrangements
My VIP Tax Team question of the week: ATED – Non-qualifying Occupation