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Sections 62 and 203 ITEPA 2003

Employee A

Employee A is paid £7,500 a year for 2015/16, with free board and lodging provided by the employer. »Ê¹ÚÌåÓýapp employer already owns the premises where the board and lodging is provided, and the additional direct costs incurred by the employer in connection with the provision (food, heat, light, and so on) total £900 per annum. A receives no other expenses payments or benefits.

A is not taxed on the benefit of the board and lodging. »Ê¹ÚÌåÓýapp benefit cannot be converted into money, so it is not earnings within Section 62 ITEPA 2003 (see EIM00520).And there is no charge under the benefits legislation because A is lower paid (the total of the cash wage, £7,500, and the “cash equivalentâ€� of the board and lodging, £900, is less than £8,500).

If the cash wage, plus the cash equivalent of the board and lodging, had added up to £8,500 or more A would have been chargeable on the full cash equivalent (that is, the cost to the employer of providing the benefit) under Section 203, and the employer would have to report the benefit on form P11D. From 2016/17 onwards A is chargeable on the full cash equivalent, regardless of her rate of pay.

Employee B

Employee B has a contract of employment under which she is entitled to a salary of £10,800 a year (£900 a month) for 2015/16. »Ê¹ÚÌåÓýapp employer provides B with board and lodging, in respect of which they deduct £150 a month from her pay. »Ê¹ÚÌåÓýapp actual cost to the employer of providing the board and lodging is £180 a month.

»Ê¹ÚÌåÓýapp employer must operate PAYE on the full £900 a month, before deducting the £150 for board and lodging. »Ê¹ÚÌåÓýapp full amount of the salary that B is entitled to receive under her contract of employment is earnings within Section 62, and the £150 is not allowable as a deduction under Section 336 (see EIM31620 onwards).

B is not lower paid, and she is therefore chargeable under Section 203 on the “cash equivalentâ€� of the benefit of the board and lodging. »Ê¹ÚÌåÓýapp cash equivalent is £30 a month (cost to the employer £180 a month, less amount made good £150 a month).