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I'm working in the UK and my job pays me a basic salary, plus a "value account" worth 25% of my basic salary.

The value account can be used to purchase benefits, including medical insurance, life assurance, extra holiday, etc. Whatever I don't spend, I get as cash added to my basic salary.

I'm forced to spend 1% of it, which buys basic medical insurance and life assurance. So the maximum cash I could get is 124% of my basic salary. I'm electing to use some of the money to improve my medial insurance and bump up the life assurance, so I'll get a bit less than 124%.

The dedicated website I used to select my benefits shows the cost of the benefit, but shows that they are being paid from my gross income. I'm confused as to whether these benefits will be seen as benefits in kind? Because I'm "buying" them with pseudo-cash, is it a benefit in kind?

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    Your forced to buy "medical insurance and life assurance" that sounds very unusual if not illegal in the UK being forced to buy from the company store has been illegal for a long time. – Pepone May 4 '15 at 15:42
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    @Pepone: my employer pays life insurance on my behalf. I could refuse to accept it, but I can't take a cash alternative. Up to accounting technique, that's the same thing as "being forced to buy it in the company store". It's not really a forced purchase, it's a benefit in kind. I don't think it's illegal, certainly HMRC knows about it since I pay income tax on the value of the premiums. If it took my salary below minimum wage, I guess that would be illegal ;-) – Steve Jessop May 4 '15 at 16:01
  • @SteveJessop ah so he's only got 123% of his salary then not 124 – Pepone May 4 '15 at 16:54
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    @Pepone: If I follow the question, he gets his choice of anywhere between 100% and 124% of his headline salary in cash, plus his corresponding choice of anywhere between 1% and 25% of his headline salary in other benefits, of which at least the first percentage point is always the mandatory insurance. So you could also think of it a 100/24/insurance split, and the fact the insurance is worth 1% shows up in your tax calculation. – Steve Jessop May 4 '15 at 17:00
  • @SteveJessop That is correct. – Duncan Jones May 4 '15 at 17:02
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If you would be unable to make that specific purchase without being an employee, or if you're getting a discount because you're an employee, or the company is paying part of the cost because you're an employee, it's a benefit of employment.

Whether it has tax implications, or is a bargain you couldn't meet or beat elsewhere, is a separate question.

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Disclaimer: I am not a tax expert. Another disclaimer: because Pepone mentioned the company store and it amuses me, I'll refer to the pseudo-pounds you have in your value account as "company scrip". Yes, it is illegal in the UK to pay employees in company scrip, but since you have the option here to cash it out, that's not what they're really doing.

If the things you get are an actual benefit with value, then even though you've bought them with company scrip, they're still a benefit of employment because having the company scrip available to you in the first place, that is to say having the potential to get these things, is a consequence/benefit of employment.

This should be obvious in the case of any cash that you buy with your company scrip and that's added to your paycheck. At least, I hope it's obvious that this is employment income: it's certainly obvious to HMRC that it is!

The same goes if you use the company scrip to buy insurance. If that insurance would be considered an employment benefit for any purpose (for example tax, or compensation for wrongful dismissal), then the fact that a company scrip system was used to let you decide the nature of the benefit is irrelevant, it's an employment benefit. The fact that you have the option to take cash instead, though, means that anything you get this way will never be what HMRC calls a "trivial" benefit in kind, so the system can at least hypothetically have a small effect on tax compared with if the stuff just landed on your desk one morning unsolicited :-)

These systems often let you use the scrip for certain things that in fact aren't taxable or at least not at your marginal rate: pension contributions, childcare vouchers, buying a bicycle through work, whatever other schemes are in effect in the UK at the moment. So they still benefits, just not necessarily taxable ones, and that's one reason for presenting the value account balance to you as a gross figure.

Where the thing you buy is taxable, then it will be taxed at (an estimate of) its actual value, which is not necessarily equal to what they charged you for it in company scrip. It might be worth more, it might be worth less. It's going to be someone's responsibility (ultimately yours, I suspect, but maybe your employer's) to provide HMRC with a fair value to calculate your tax on. If this is all done through PAYE then you can pretty much ignore it if you choose, but it will affect your net paycheck. If you take the full 25% in benefits, and all those benefits are taxable at your maginal rate, which let's say is 40%, then it'd cost you 10% of your gross salary in additional deducted income tax, compared with what you'd pay if you had the same basic salary and no extra 25% benefits. The same goes for employee NICs.

So, if the mandatory insurance was not insurance, but instead a pig, and if you pay income tax at 40%, and suppose you really didn't want a pig even at 60% off retail price, then you'd want to decline the pig in order to avoid the income tax liability. Poor little piggy. Since you want to boost the insurance anyway, though, this isn't a problem for you.

Finally, if you use it to buy time off then I strongy suspect and fervently hope that this then is not taxable in any way, since really what you're doing is less work for less pay. A day off isn't a benefit in kind, although if they charge you less for it than 1/N of your salary, N being your normal number of working days in the year, then of course whatever you're being paid while on holiday is taxable like any other income.

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Yes, the benefits you get will be considered to be benefits in kind and in general you'd be taxed on them, but the treatment would depend on the specific benefit as some are exempt from tax or national insurance or both. For example pension contributions are exempt from both tax and national insurance up to a certain limit.

The tax will normally be handled as part of your normal payslip, so you won't need to do anything extra. Your employer will probably give details of which benefits are subject to what tax at the time of selecting them.

In the case of extra holiday, you're effectively just working less for less pay rather than "buying" holiday, so you won't get taxed on that at all.

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