In the UK arguably benefits as a way of pay took off under the 1970s Labour government when income tax rates climbed. Values used to tax the benefit were often low. Need a new suit? Let the employer provide it and get taxed at the (low) second-hand value. Tax rules, and rates, have changed since then. So what is still tax-efficient? Could we see a resurgence in benefits-in-kind if tax rates change?
Tax is now usually levied on the basis of the cost to the employer. For some things, there are set rates, a "scale charge", to stop and save administrative effort.
In many ways benefits are still ingrained in the UK employment system. It takes a long time for what are almost habits, such as providing a company car, to die away; at the same time a number of benefits such as medical insurance are seen as part of a caring employer's policy. In any case, giving a benefit that costs the employee 40p in the pound, rather than pound for pound if bought directly, still looks attractive.
Let's start with the familiar ground of the car. If the employer provides, there is a charge based on 35 per cent of the list price of the car when new. This reduces if the car is over four years old and, importantly, if a good number of business miles are done in the car.
This car tax charge can be quite high, particularly if you do little business travel. Increasingly employers are winding down car schemes or at least giving employees a cash option: a salary increase rather than a car.
There is a flat rate benefit (typically pounds 1,010 for a medium-sized car) if the employer gives free fuel. The car fuel charge can be good value if you do a lot of private mileage on your free petrol, but bad news if all you got was a single private fill-up as the full benefit charge bites for a single drop of private petrol.
Oddly, a free car parking space (valuable in a big city) is not taxed, though Labour has suggested it should be.
Private medical insurance is a regular benefit in the UK and is an example of something taxed on the cost to the provider. That route is followed for interest-free (or low-interest) loans as well though the taxman lays down "official" rates of interest to measure the cost by. But here there can be good value for a loan of under pounds 5,000 - no tax on that, which covers most season ticket loans.
Moving during the job can be a regular occurrence. If you are relocated, the tax man regards the moving expenses paid for by the employer as tax- free. That might even include a new set of curtains. But if the move costs over pounds 8,000 the excess is taxable.
Having moved, you might be lucky enough to be provided with a house. A tax charge would arise on the rental paid if the employer leases it. If the employer buys the house, a cheaper (cost under pounds 75,000) property is charged on its rateable value. More expensive property is additionally taxed as if the employee is getting an interest-free loan of the value about pounds 75,000. The result can make some properties expensive in tax terms, though there are exemptions where occupying the accommodation is necessary for the job.
And what about the suit I mentioned earlier? For those who thought it was a joke - no, such things really happened. Nowadays it's less tax-efficient. A company-provided asset attracts an annual tax charge based on 20 per cent of the cost.
If the asset is transferred to you, that means tax on the cost, less anything you have already been assessed on. That might seem fair enough for the suit, though put a corporate logo on it and it may well rank as a uniform and be tax-free. But if you are offered the chance of a weekend's use of the company yacht, think twice. That could mean a tax charge based on 20 per cent of the cost of the yacht. The Inland Revenue may allow an apportionment of this charge across all users but it could still be a very expensive weekend.
John Whiting is tax partner at Price WaterhouseReuse content