Firstly, when answering the question of if there is a benefit in kind, we look to section 201 ITEPA 2003. Section 201 provides a definition of employment related benefit in two parts:
Section 201 (2)(a) – “benefit” means a benefit or facility of any kind
Section 201 (2)(b) – “employment-related benefit” means a benefit, other than an excluded benefit, which is provided in a tax year –
(a) For an employee, or
(b) For a member of the employee’s family or household, by reason of the employment
Further to this section 201 (3) defines a benefit cannot be employment related if it provided by an employer who is (a) an individual and (b) it is provided in the normal course of their normal domestic, family of personal relationships. Sub-section 3 cannot apply as the employer is a limited company. Section 201 clearly applies, so we have a benefit in the form of the stable, provided by reason of the employment of the director – but what is the value of the benefit?
We then need to consider if the benefit is an excluded benefit under section 202 ITEPA 2003. In essence this is a question of asking if the benefit is caught within the benefits code between chapters 3 to 9 or equally if the benefit is excepted under any of the same legislation. This type of benefit is not caught or excepted by any specific legislation in those chapters of ITEPA 2003.
As none of the sections within the benefits code apply, we look to section 203 ITEPA – cash equivalent of benefit treated as earnings. Section 203 effectively states the method of calculation is the cost incurred by the employer by virtue of section 204 unless sections 205 or 206 apply. Section 206 can be ruled out immediately as this is a case of supply or usage and not transfer of property. The links below provide HMRC’s opinion on section 204 and 205:
Section 204 ITEPA 2003 – Cost of the benefit: basic rule
Section 205 ITEPA 2003 – Cost of the benefit: asset made available without transfer
We can answer this question by using the Pepper vs Hart case as an example of how legislation is applied. Simply broken down we can surmise the following from the case:
– Where this is a provision of a service in that the stable is a business operation available to the public to use, section 204 will be applied.
– If this was a business asset made available for private use to its employee’s, section 205 would apply.
From the call we understand that the business operates the stable for profit thus we can apply the residual liability principle of Pepper vs Hart – section 204, the cost incurred by the employer in supplying the service. The value of the benefit will therefore need to only take into consideration what the business expends in providing the stable to the daughter – cost of feed, hay etc. Of course, if the director made good or supplied this themselves the value of the benefit would be zero – it has cost the employer no more than it would normally whether the daughter of the director used the stable or not.
Should there be a reportable cash equivalent or reportable benefit which was made good then a P11d for the director would be required. Entering the cash equivalent under section K – services supplied remembering that an employer provided benefit incurs class 1A National Insurance.
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