Income Tax (Earnings and Pensions) Act 2003 section 94A

Benefit of credit-token treated as earnings: optional remuneration

Section 94A sets out how the taxable benefit is calculated when an employee uses a credit-token provided under an optional remuneration arrangement (commonly known as a salary sacrifice) to obtain money, goods or services.

• Where a credit-token is used under an optional remuneration arrangement and the salary or benefits given up (AF) exceeds the cost of providing the benefit, the amount foregone (AF) — less any amounts made good by the employee by 6 July after the tax year — is treated as taxable earnings
• If the amount made good by the employee exceeds AF, the taxable amount is treated as zero
• The relevant cost of provision is the total of the individual costs for each occasion the credit-token is used during the tax year under the optional remuneration arrangement
• If the credit-token benefit would otherwise have been exempt from income tax but for the rules that deny exemptions under optional remuneration arrangements, the relevant cost of provision is treated as zero — meaning the full amount foregone is taxed