Income Tax (Earnings and Pensions) Act 2003 section 289D

Exemption for other benefits

Section 289D provides an income tax exemption for benefits in kind where the employee would otherwise have been entitled to a tax deduction for the same amount, provided the benefit is not linked to a salary sacrifice arrangement.

• Where a benefit in kind gives rise to a taxable amount, no income tax is due if the employee would have been entitled to a deduction of the same amount under the expenses rules in Chapter 3 of Part 5 of ITEPA 2003.
• The exemption effectively cancels out the tax charge where the benefit would qualify for a matching expense deduction, removing the need for employees to claim the deduction separately.
• The exemption does not apply if the benefit is provided through a salary sacrifice arrangement — that is, where the employee gives up salary or other earnings in exchange for the benefit, or where their pay varies depending on whether the benefit is provided.
• The definition of salary sacrifice arrangements covers agreements made at any time, whether before or after the employment began, ensuring the restriction applies broadly.