tax code and employer benefits question

bumpybecky

I'm having a bit of a blonde day and have got my head all twisted :rolleyes: can anyone help please?

Mr Bumpy has received a new tax coding notice for next year and it's got an entry for employer benefits (I'm guessing this is the additional illness cover he took out). I'm trying to work out how much this is costing us.

The coding notice says the benefit is approx £300, so his tax code is reduced by that much (and some more for various reasons).

Does this mean the illness cover is costing £300 per year? or is it costing the tax on £300 per year, in his case 20% of £300, so £60??

thanks in advance

BoGoF

In terms of tax it is costing him £300 at his marginal rate of tax, so if he is a basic rate taxpayer it will cost him £300 @ 20% as you say.

CarolynH

The £300 is the value of the benefit. (I.e if Mr Bumpy didn't get the benefit provided by the employer, it would cost you £300 out of your own pockets (ie after tax) to purchase the same service).

As such, tax is due on the £300 benefit he has receievd.

Normally tax is paid by a portion of salary being withheld. However, the government can't receive a portion of the benefit. So what they do is amend tax codes, which results in a higher portion of salary being retained. This then covers the tax that would have been paid on the benefit had it been paid in cash.

You're not going to be £300 worse off (there would be no benefit in having this 'benefit' if that were the case), the amended code just covers the tax due on the benefit.