SE15525 - Value Added Tax: inter-relation with emoluments and expenses - VAT and benefits in kind

An employee who receives goods or assets as emoluments will be chargeable

• on the second-hand value under Section 19(1)1 ICTA 1988 (see SE00540) or
• if the employee is within Part V Chapter II ICTA 1988, on the greater of that second-hand value or the cost of the provision of the asset calculated as at SE21641 onwards.

VAT will not directly enter into the calculation of second-hand value. But it may affect that value because a new item of the same type may well attract VAT. If it does, that will inevitably influence the second-hand value of the item in question.

Where the chargeable benefit is based on the cost of providing an asset, the full amount of the expenditure including VAT should be taken into account even if the employer or provider may subsequently recover all or part of the VAT by set-off or by repayment from Customs and Excise.