Income Tax (Earnings and Pensions) Act 2003 section 87A

Benefit of non-cash voucher treated as earnings: optional remuneration arrangements

Section 87A sets out how the taxable value of a non-cash voucher is calculated when it is provided to an employee through an optional remuneration arrangement (commonly known as a salary sacrifice or flexible benefits scheme).

• Where a non-cash voucher is provided under an optional remuneration arrangement, the taxable amount is the higher of the cost of providing the voucher and the amount of salary or other benefits the employee has given up to receive it.
• If the cost of provision equals or exceeds the amount foregone, the taxable amount is simply the normal cash equivalent of the voucher; if the amount foregone is higher, the taxable amount is the amount foregone less any amounts the employee has paid back towards the cost.
• For standard non-cash vouchers, the relevant tax year is the later of when the cost is incurred or the voucher is received; for cheque vouchers, it is the year the voucher is exchanged for money, goods or services.
• If the voucher would normally qualify for an income tax exemption but that exemption is blocked because it was provided through an optional remuneration arrangement, the cost of provision is treated as zero, meaning the amount foregone will always be the taxable figure.