RPSM07102220 - Technical Pages: Investments: Non arms length transactions: Benefits in kind: Exclusions from charge

Exclusions from charge

Where a person who is, or has been, a scheme member is provided with a benefit by reason of their employment (which is not an excluded employment as defined in section 63(4) of Income Tax (Earnings and Pensions) Act 2003 (ITEPA)) (see EIM20007) and has already been taxed on the benefit as an employee, the payment will not be treated as an unauthorised payment on the member as well. This avoids creating a double tax charge.

Example

X Ltd pension scheme (which is not an investment-regulated pension scheme) owns a Rolls Royce, which is leased to the sponsoring employer X Ltd. Jason is a director of X Ltd and is provided with use of the Rolls Royce as a company car and for private use. Jason is subject to a benefit in kind tax charge on the use of the Rolls Royce as a director, and X Ltd submits a form P11d to their tax district.

Although the asset belongs to the pension scheme, there is no additional benefit charged on Jason.

Where a benefit is provided by reason of an excluded employment an unauthorised payment charge will be made,

• if it is a benefit that would have been chargeable on the member under ITEPA 2003 if the employment was not an excluded employment;
• if it is an occupational pension scheme that is holding the asset providing the benefit; and
• the member, or member of his family or household is a director with a material interest in the sponsoring employer

“Material interest” has the meaning given by Section 68 ITEPA 2003 but broadly means owning 5% of the share capital or having an entitlement to 5% of the assets (see Employment Income manual at EIM20212).

Example

Lisa is a member of Q Ltd Retirement Benefit Scheme (which is not an investment- regulated pension scheme) and an employee of Q Ltd. She earns £2000 per year. Her husband Nick is a director of the sponsoring employer. She is provided with the use of a car in her own right which is an asset of Q Ltd RBS. The value of the benefit is £5000 per year. As her salary plus the value of the benefit is less than £8500 per year, Lisa will not be taxed on the benefit as an employee. However, as her husband is a director, Lisa will be liable to an unauthorised payments charge on the value of the benefit. As the car is also a wasting asset, the scheme will be liable to a scheme sanction charge.

Glossary ( RPSM20000000)