Teachers win windfall of up to 30m pounds for 150,000 people: A court ruling will change the way tax on benefits is calculated, writes Vivien Goldsmith

THE Inland Revenue is poised to return between pounds 20m and pounds 30m to employees who have been overcharged for in-house benefits such as the use of a mobile telephone or free travel.

Over 150,000 people will benefit from the ruling in the Pepper v Hart case when a group of schoolmasters from Malvern College challenged the way that tax was levied on the cut-rate school fees for their own children.

Payments will be retrospective over six years, and interest will be paid on the wrongly held tax.

The House of Lords decided it was the marginal cost of providing the benefit rather than the average cost of the benefit that should be used for tax calculations.

Current and retired employees of British Rail (around 100,000 people) and London Regional Transport (40,000 people) will be sent details of how to get repayments, but other employees will have to apply to their tax office.

In future there will be no tax liability for bus and rail employees as long as they do not displace fare-paying passengers. Talks are still continuing with the airlines about the terms for them.

Teachers in private schools who pay at least 15 per cent of the full fees for their own children will be deemed to be covering the marginal cost. The teachers at Malvern College were already paying 20 per cent of the normal fees. Employees who pay at least the wholesale cost of goods sold at a discount will also escape any tax on the 'benefit'.

When lawyers or accountants offer advice to employees this will not count as a benefit as long as no extra staff are employed to do the work and the employee pays any direct fees such as stamp duty on a house purchase.

When employees have the use of a fixed asset for private purposes then only the extra costs will be taken into account. So the road tax on a fitter's van will not count when calculating the value to him of being allowed to use the van for private travel.

Since 1991 when Norman Lamont decided to tax the use of mobile telephones, the benefit has been assessed at pounds 200 a year. But when employees repay all the costs of private calls including part of the annual value, or make no private use of it, there is no tax charge. Employees do not have to pay a proportion of the line rental.

Employees who believe they are entitled to make a claim for previous years should not tarry beyond April, as years before 1986/7 will start to fall out of account.

Loughlin Hickey, a partner of the accountants KPMG, said it was good of the Inland Revenue to make it explicit that taxpayers would have to reclaim the tax. But he said there were still issues that need clearing up.

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