SE21704 - Benefits: discounts

Section 156(2) ICTA 1988

An employer may allow his employees to buy goods or services from him at a discount. This is a benefit to the employee. However if the discounted amount the employee pays exceeds the expense incurred by the employer in providing the goods or services the cash equivalent of the benefit will be nil. This is because the employee has made good more than the expense of provision of the benefit.

The expense of provision of the benefit includes the cost to the employer of the production or acquisition of the goods or services concerned, together with a proportion of any overhead expenses directly related to that production or acquisition. The expense also includes any taxes or duties paid by the employer in respect of the goods or services.

If the expense of provision exceeds the discounted price paid, the chargeable emolument arising to a director or employee within Part V Chapter II ICTA 1988 should be calculated in accordance with SE21645.

Even if there is no charge under Part V Chapter II ICTA 1988, a charge may arise under Section 19(1)1 ICTA 1988 if the “second hand” value of what the employee buys exceeds the discounted price paid ( SE01090).