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4. Employee benefits



Where a car is made available for an employee’s private use a taxable benefit arises. Since April 2002 the taxable benefit has been calculated by applying a percentage to the list price of the car. The percentage is related to the CO2 emissions of the car and ranges from 15% to 35% (in 1% increments) for a petrol car. Diesel cars that do not meet Euro IV emissions standards attract a 3% supplement on the petrol percentages (capped at 35%). Cars that run on alternative fuels attract discounts to the petrol percentage. The CO2 emissions qualifying for the minimum petrol percentage charge have been set as follows:

· 2005/06 140 grams per kilometre of CO2
· 2006/07 140 grams per kilometre of CO2
· 2007/08 140 grams per kilometre of CO2

Car fuel

An additional taxable benefit arises if the employee receives free fuel for the company car for their private use. The taxable benefit calculation was reformed in April 2003 to align the charge with the environmental principles of the company car tax system. Since April 2003 the fuel benefit charge has been calculated by applying the company car tax appropriate percentage to a set figure. In 2004/05 the set figure was £14,400 and continues to be £14,400 for 2005/06.

Cars that are capable of running on alternative fuel such as liquefied petroleum gas (LPG), compressed natural gas (CNG) or battery-propelled cars, currently enjoy a discount from the equivalent company car percentage. There are different calculations of the discounts for bi-fuel gas and petrol cars depending on whether they are manufactured or converted to run on gas as well as petrol before or after the type approval.

The current discounts are:

Cost of conversion disregarded plus 1% discount for bi-fuel gas and petrol cars converted after type approval;

1% discount plus an additional 1% for each 20g/km the car’s emissions fall below the level of CO2 qualifying for the minimum petrol percentage charge for bi-fuel gas and petrol cars manufactured or converted before type approval;

2% discount plus an additional 1% for each 20g/km the car’s emissions fall below the level of CO2 qualifying for the minimum petrol percentage charge for hybrid petrol and electric cars; and

6% discount for electric-only cars.

For 2006/07 the discounts for cars that run on alternative fuels will be simplified to:

Cost of conversion disregarded for bi-fuel gas and petrol cars converted after type approval, no additional percentage discount;

2% discount for bi-fuel gas and petrol cars manufactured or converted before type approval;

3% discount for hybrid electric and petrol cars; and

the 6% discount for electric-only cars will be maintained.


Currently an employer is allowed to provide outplacement counselling and retraining courses for employees who lose their jobs without the employee incurring an income tax charge. One of the conditions for this exemption is that the employee must work full-time; another is that any course undertaken should last no more than a year.

The proposed revision extends the current exemption to include part-time workers and provides that any course undertaken can last up to a maximum of two years.

The new rules take effect from 6 April 2005.


Statement of Practice 4/86 is updated and modernised. The current statement of practice (SP 4/86 “Scholarship And Apprenticeship Schemes At Universities And Technical Colleges”) sets out the circumstances when payments made by an employer to an employee for periods of attendance on a full-time course can be exempted from income tax. The statement of practice states that:

the employee must be attending a full-time course at a recognised educational establishment, for at least twenty weeks a year;

the payments can cover lodging allowance, subsistence and travelling allowances, but exclude any university fees or fees payable by the employee;

the payments do not exceed the higher of £7,000 or an amount, which an individual in similar personal circumstances would have received as a grant from a public awarding body (e.g. studentship from one of the research councils).

In the revised statement of practice (which has been renamed) most of the conditions and limitations remain the same, but the revised statement of practice:

raises the limit from £7,000 to £15,000;

has simpler language and layout, for example, clarifying that this measure is linked to an academic year;

removes the link to amounts paid by awarding bodies;

will be reviewed annually.

Although statements of practice do not relate to National Insurance the government has taken the opportunity to exempt such payments from National Insurance as well as tax.


Computers and bicycles loaned to employees by their employer are exempt from the tax charge on the benefit arising. For computers the exemption applies to the first £500 of annual benefit.

The Government-sponsored Home Computer Initiative (HCI) encourages employers to set up computer loan schemes allowing employees to take advantage of the exemption for computers and generally envisages that employees will buy computers from their employer after the loan period ends at market value. Currently if the employee decides to buy the computer or bicycle at the end of the loan period for market value a tax charge may still arise as the benefits-in-kind rules provide for an alternative basis. This alternative basis is the market value at the time the asset was first lent to the employee less the total value of the benefit-in-kind tax charges that the employee has suffered in each tax year he has used the asset. This could effectively mean that the annual £500 exemption is clawed-back.

Therefore, this measure will disapply the alternative basis of valuation for computers and bicycles that have benefited from the exemption. This will mean that where ownership of a computer or bicycle that has previously been loaned to an employee is transferred to an employee the valuation rule which applies in deciding whether any benefit arises at transfer will always be the market value.


Boateng quits politics

Chief secretary to the treasury Paul Boateng has announced his retirement from politics.Boateng will set down at the election to become high commissioner to South Africa.


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