Legislation was introduced in FA 2009, s.71 which changed the rules for calculating the benefit in kind charge on living accommodation to ensure that the value of any lease premium is taken into account in working out the benefits in kind charge. The legislation was changed to counter attempts to reduce the tax and Class 1A National Insurance payable on the benefit by reducing the rent payable and paying a lease premium instead. Under the arrangements the accommodation was often provided through an employee benefits trust.
HMRC regarded the use of schemes using lease premiums to reduce the rent, and consequently, the benefits in kind charge as tax avoidance. They have launched what they bill as a 'time-limited opportunity' to resolve the dispute. Under the lease premium initiative employers are invited to indicate their willingness to reach an agreement with HMRC 'without recourse to the Tribunal or Courts'. The initiative applies to:
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cases where a premium is payable under a lease entered into or extended before 22 April 2009;
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cases involving the use of employee benefit trusts or similar entities involving leases for 24 months or less; and
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cases involving direct leases entered into or amended on or after 6 April 2006 and involving leases of 24 months or less.
Employers wishing to participate in the initiative must register their interest with HMRC by 5pm on 6 August 2010.
However, it should be noted that the Finance Act 2009 changes apply to leases entered into on or after 22 April 2009 and to leases entered into before that date but extended on after 22 April 2009. In other cases, the benefit should be computed by reference to the legislation as it applies at the time.
Further details of the lease premium initiative are available on the HMRC website.