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Taxation (UK) · Income from employment

Taxable and Exempt Benefits in Kind for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

A benefit in kind is a non-cash reward from your employer, taxed as employment income. Work out the cash-equivalent value using the rule for that benefit: a percentage of the car's list price, the official rate on a loan, or annual value for accommodation. Then deduct anything the employee pays and check for exemptions.

Understand Taxable and Exempt Benefits

A benefit in kind is something your employer gives you instead of, or on top of, salary. Examples are a company car, a cheap loan or a free flat. HMRC taxes it as part of your employment income, so it is added to your salary and taxed at your normal income tax rates.

Older material distinguishes employees earning below £8,500 from others. That distinction was abolished, so all employees are taxed on benefits the same way. Do not apply an old £8,500 test unless the question tells you to.

The taxable amount is the cash equivalent, not what the employer paid. Each benefit has its own rule. Cars use a percentage of list price. Loans use the official rate of interest. Accommodation uses annual value plus an extra charge for expensive property. Anything the employee pays back for the benefit reduces the taxable amount.

Some benefits are exempt. They are not taxed at all. Examples are workplace parking, trivial benefits, and employer pension contributions to a registered scheme. Exam questions often include one or two exempt items as traps.

Employers also pay Class 1A NIC on most taxable benefits, at 15%. The employee does not pay NIC on them. Questions often ask for both the employee's tax effect and the employer's cost.

Key rules to remember

Car benefit
List price (less capital contributions, max £5,000) × appropriate percentage × months available ÷ 12
Base level is 55 g/km, which gives 17%. 51 to 54 g/km gives 16%. Zero-emission electric cars give 3%. Hybrids use the electric range table. The exam provides the percentage table, so do not rely on memory. Employee contributions for private use reduce the benefit pound for pound.
Car fuel benefit
£28,200 × same percentage as the car × months available ÷ 12
Applies only if the employer pays for fuel for private journeys. If the employee repays all private fuel cost, the benefit is nil. Part repayment gives no reduction.
Van benefit
£4,020 scale charge; van fuel benefit £769
Applies to private use of a company van. Zero-emission vans have a 0% benefit. Reduce for periods unavailable.
Beneficial loan (average method)
(Opening balance + closing balance) ÷ 2 × official rate (3.75%) less interest paid by employee
Exempt if the total of all employer loans never exceeds £10,000 in the tax year. The average method is the default. The strict (day by day) method applies if the taxpayer or HMRC elects for it, so use it if the question tells you to.
Living accommodation: basic charge
Annual value (or rent paid by employer if higher) × period provided
Not taxed if the accommodation is job-related, for example the employee must live there to do the job properly.
Living accommodation: additional charge
(Cost of property − £75,000) × official rate (3.75%)
Only where cost exceeds £75,000. Cost includes improvements made before the start of the tax year. Employee payments reduce the total charge.
Use of an asset (not a car or accommodation)
20% × market value when first provided, per year
If the employer rents the asset, use the higher of 20% of market value and the rent paid.
Gift of an asset
New asset: market value at the gift date. Used asset: higher of (a) market value at the gift date and (b) market value when first provided less amounts already taxed as use of the asset
For a used asset, the original market value when first provided is used, not cost. Deduct the benefits already taxed for use of the asset, then compare with current market value and take the higher.
Class 1A NIC
Taxable benefits × 15%
Paid by the employer only, once a year.
Approved mileage allowances (cars)
45p per mile up to 10,000 miles; 25p per mile above 10,000
Payments up to these rates are exempt. Any excess paid is taxable. If the employer pays less than the approved rate, the employee can claim relief for the shortfall.

How to solve Taxable and Exempt Benefits questions

Use this method for any benefits question. It works whether you are asked for one benefit or a full list.

  1. 1List every benefit in the question and tick off the exempt ones first (parking, trivial benefits up to £50, pension contributions to a registered scheme, approved mileage payments).
  2. 2For each taxable benefit, pick the right rule: car, fuel, van, loan, accommodation or other asset.
  3. 3Find the figures you need: list price, CO2 emissions, electric range, loan balances, annual value, cost of property, months available.
  4. 4Compute the gross benefit. Time-apportion for part years. For cars, deduct any capital contribution (max £5,000) from the list price first.
  5. 5Deduct anything the employee paid for the benefit, such as private use payments or loan interest.
  6. 6Add the net taxable benefits to salary to get total employment income, or calculate Class 1A NIC at 15% if asked for the employer cost.
  7. 7Show each benefit on its own line with a clear label, so you collect method marks even if one number is wrong.

Quickest way: One-line-per-benefit method

When to use it: Use this in a Section C question or a five-question OT case where several benefits appear in one scenario.

  1. Write the benefit name, then the formula in one line, with the numbers plugged in.
  2. Do car and fuel together. Use one percentage for both, and one time fraction.
  3. For loans, check the £10,000 exemption before doing any arithmetic.
  4. For accommodation, check job-related status first. If job-related, stop. Otherwise calculate basic charge, then the additional charge only if cost is over £75,000.
  5. Total the taxable benefits and multiply by 15% if Class 1A is asked for.

Common mistakes in Taxable and Exempt Benefits

  • Applying a £8,500 lower-paid test

    Old textbooks and notes still describe the lower-paid employee rules.

    Fix: Treat every employee the same. Only look at exemptions and specific rules for each benefit.

  • Using the car's list price instead of the £28,200 base figure for the fuel benefit

    Students use the car's list price instead of the £28,200 base figure.

    Fix: Fuel benefit is £28,200 × the car's percentage. The list price is never used.

  • Reducing the fuel benefit for part repayment

    It seems fair that partial repayment should reduce the charge.

    Fix: The fuel benefit is nil only if the employee repays all the private fuel cost. Otherwise the full charge applies.

  • Forgetting the additional accommodation charge, or applying it when cost is £75,000 or below

    Students mix up annual value and cost.

    Fix: Always check cost against £75,000. The additional charge is (cost − £75,000) × 3.75%, and only if cost is higher.

  • Taxing a loan that falls under the £10,000 exemption

    Students calculate the benefit before checking the threshold.

    Fix: Check the largest total of loans outstanding at any time in the year. If it never exceeds £10,000, there is no benefit.

  • Charging Class 1A NIC to the employee, or using Class 1 rates

    Benefits are part of employment income, so students assume Class 1 applies.

    Fix: Class 1A is 15%, paid only by the employer, on the taxable benefits.

Worked examples

Example 1

Anna is given a petrol company car on 6 July 2025 and has it for the rest of the 2025/26 tax year (9 months). The list price is £30,000 and CO2 emissions are 55 g/km. Anna pays £2,000 towards the cost of the car when it is provided. The employer pays for all fuel, including private fuel. Anna does not repay any fuel. Calculate the taxable benefits for 2025/26.

Show the solution
  1. Percentage: 55 g/km is the base level, so the percentage is 17%.
  2. Adjusted list price: £30,000 − £2,000 capital contribution = £28,000. The contribution is below the £5,000 maximum.
  3. Car benefit: £28,000 × 17% = £4,760. Time-apportion: £4,760 × 9 ÷ 12 = £3,570.
  4. Fuel benefit: £28,200 × 17% = £4,794. Time-apportion: £4,794 × 9 ÷ 12 = £3,595.50.
  5. Total: £3,570 + £3,595.50 = £7,165.50.

Answer: Car benefit £3,570 and fuel benefit £3,595.50. Total taxable benefits are £7,165.50.

Example 2

Ben's employer gives him an interest-free loan of £30,000 on 6 April 2025. He repays £12,000 during the year, so the balance at 5 April 2026 is £18,000. Ben also pays his employer £200 loan interest in the year. Separately, Ben lives in a flat owned by his employer. It is not job-related accommodation. The flat cost £200,000, its annual value is £3,000, and Ben lives there for the whole year. Ben pays nothing for it. The official rate is 3.75%. Calculate the taxable benefits and the employer's Class 1A NIC on them.

Show the solution
  1. Loan check: the loan exceeds £10,000, so the exemption does not apply.
  2. Average balance: (£30,000 + £18,000) ÷ 2 = £24,000.
  3. Loan benefit: £24,000 × 3.75% = £900. Less interest paid £200 = £700.
  4. Accommodation basic charge: annual value £3,000 for a full year.
  5. Additional charge: cost £200,000 is above £75,000, so (£200,000 − £75,000) × 3.75% = £125,000 × 3.75% = £4,687.50.
  6. Accommodation total: £3,000 + £4,687.50 = £7,687.50.
  7. Total taxable benefits: £700 + £7,687.50 = £8,387.50.
  8. Class 1A NIC: £8,387.50 × 15% = £1,258.125, which is £1,258.13 to the nearest penny.

Answer: Loan benefit £700 and accommodation benefit £7,687.50. Total taxable benefits are £8,387.50. Employer's Class 1A NIC is £1,258.13.

Exam tips

  • Read the CO2 figure and fuel type carefully. The exam table gives the percentage, so do not rely on memory.
  • Always state the time fraction for cars and fuel. Examiners award marks for the apportionment even if the percentage is wrong.
  • Use the table of exempt benefits as a checklist. If a question lists five benefits, at least one is often exempt.
  • In OT questions, check if the question asks for the benefit, the tax cost or the Class 1A cost. These are different numbers.
  • Show a separate line for each benefit in Section C. This protects your marks if one calculation goes wrong.

Practice questions from Income from employment

Taxable and Exempt Benefits in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Taxable and Exempt Benefits: frequently asked questions

Does the £8,500 earnings limit still matter for benefits in TX-UK?

No. Older material distinguishes employees earning below £8,500 from others, but that distinction was abolished. All employees are taxed on benefits the same way, so do not use a lower-paid or higher-paid split unless the question explicitly asks for it.

What are the main exempt benefits in the TX-UK exam?

Common ones are workplace parking, a trivial benefit of £50 or less, employer pension contributions to a registered scheme, approved mileage payments, and a loan that never exceeds £10,000 in total. Always check the question wording for conditions.

How do I calculate a company car benefit?

Take the list price, less any capital contribution up to £5,000. Multiply by the percentage for the car's CO2 emissions or electric range. Then reduce for months unavailable and for any private use payments by the employee.

How do I calculate the beneficial loan benefit?

Find the average loan balance, multiply by the official rate of 3.75%, and deduct any interest the employee paid. If all loans total £10,000 or less at all times in the year, there is no benefit.

Who pays Class 1A NIC on benefits?

The employer pays it, at 15% of the taxable benefits. The employee pays income tax on the benefit but no NIC.