Consider the taxation of benefits in kind for employees in the UK, Essay

Consider the taxation of benefits in kind for employees in the UK, should benefits in kind be taxed at all To what extent does - Essay Example This monetary value is included in the total earnings of the employee and then taxed accordingly. There has been a debate whether benefits in kind should be taxed or not. Taxing such benefits is essential because employees cannot be allowed to have numerous benefits but low salaries so that they are taxed less. However, the same can prove to be very unfair when an employee is provided with a one-time benefit in kind and he has to pay too much tax as a result. Another problem arises when an employee is provided with a benefit in kind which is clearly of a great value but is not taxed u/s 62 because it cannot be converted into something having monetary value. Valuation can be very tricky for some articles and it can end up relieving the employee of tax liability for the benefit hence giving him an unfair advantage. There have been numerous cases which had to be settled in court due to the confusion of valuation. The courts have a history of deciding theses cases while remaining within the confines of S 62. This section seems inadequate and unfair on occasions where an accommodation can go untaxed but a mere provision of a suit is taxed because one can be valued and the other cannot. In order to be fair, the valuation system is required to be adequate and broader in scope. Another problem is that the benefit code does not apply to lower paid employees. The lower paid employees are defined in such a way that can include those employees who are not actually lower paid. According to S 217(1), a lower paid employee is one who has an earning rate of less than ?8,500. By the inclusion of benefits obtained under the benefit code, many employees, who have the monetary earnings rate of less than ?8,500, do not fall in the definition of lower paid employees. However, when employees hold benefits of great values, which are such that are not convertible to something having a monetary benefit, the employees fall in the definition of lower paid employees and become exempt from the benefits code. This is a huge problem which can only be solved by broadening the scope of S 62 and the valuation system. Section 64 is also of importance as it deals with the relationship between earnings and benefits code. There may be a case that a single benefit is provided to an employee but it gives rise to both an amount treated as earnings and an amount to be treated as earnings under the benefit code. Section 64(2) provides that in such a case, the amount that is constituted as earnings is to be treated as earnings, and only that portion of the second amount is to be treated as earning under the benefits code which exceeds the first amount. This section actually attempts to avoid the double taxation of a benefit if it falls both under S 62 and S 63. It is not a bad idea to tax such benefits in this way but there can be another way that is simpler to understand. Such benefit could also have been taxed entirely under the benefit code system. This would not have brought any changes to the resulting revenue but it would have been a better tax due to its simplicity. The underlying principle of having the benefit code system is very fair. This system is designed to make employees accountable for their perquisites. However, this system has many loopholes which allow avoidance of tax. Also, employees are also open to the danger of paying more tax than the fair amount. As mentioned above, most of the problems are created by the valuation process. Another problem arises in cases of benefits