SE01142 - Emoluments of employees and office holders: flexible benefit plans: emoluments from employment

The first point to consider when dealing with a flexible benefit plan is: do the arrangements amount to a reduction in the amount of the cash pay that the employee is contractually entitled to receive (see SE01141)?

If the answer to that question is yes, the next step is to check if the benefits that the employee gets are chargeable as emoluments within Section 19(1)1 (see SE00520) or only as benefits in kind within Part V Chapter II. The distinction is important because

• there may be differences in the calculation of the chargeable amount and
• more importantly, some statutory exemptions which apply to benefits within Section 154 (for example, the workplace nursery exemption in Section 155A (see SE21900)) do not affect liability under Section 19(1)1.

So what benefits are chargeable as emoluments under Section 19(1)1? The main ones are

• cases where the pecuniary liability principle applies (see SE00580). That is, where the employer pays a bill for goods or services which is the legal responsibility of the employee. Note that pecuniary liability payments are subject to Class 1 NIC, but are P11D items for tax.
• cases where the employee can give up the benefit in return for a higher cash wage whenever they wish to do so. This is the “Heaton v Bell” principle (see SE00570). Note that this principle does not apply if the employees can only change their benefit choice once a year, or on the happening of a special event such as a promotion, marriage, the birth of a child, and so on.