Chapter EIM21110

Published date22 May 2014
Record NumberEIM21110
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
Section 204 ITEPA 2003

Sometimes an employer, who sells goods or services in the course of their business, will provide the benefit of those goods or services to their employees free or at a lower price than they are normally sold. This sort of situation was considered in Pepper v Hart.

Pepper v Hart (65TC421)

A number of schoolmasters at Malvern College had their sons educated at the College and paid concessionary fees of no more than 20% of those paid by other parents for their children’s education. The schoolmasters’ sons occupied surplus places and their right to do so was entirely at the College’s discretion.

The education of the children at reduced fees was a benefit to the schoolmasters; the point at issue concerned the amount of that benefit.

The House of Lords held that the expense of providing the benefit of the children’s education was the marginal additional expense of its provision and not, as the Inland Revenue contended, a proper proportion of the full costs of providing an education to all pupils at the College.

In reaching this decision, Lord Browne-Wilkinson distinguished two types of benefit (page472):

  • a kind bought in from outside the employer’s business (“external benefits”), or
  • services or facilities which it is part of the employer’s business to sell to the public (“in- house benefits”).

The cost of an external benefit is normally easy to recognise because the employer has to pay an amount to a third party, for example, to buy medical insurance or purchase a car for an employee.

On the other hand the cost of an in-house benefit is more difficult to quantify because the employer already incurs costs on providing the goods or service to the public and the cost of providing the same service to an employee is only a marginal additional expense. For example, in the...

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