A private school offers free places to the children of its staff. The actual cost to the school of providing the place is £2,000 in a tax year, although the fees charged to other pupils is £5,000 in a tax year. The taxable value of the benefit to the staff is the actual cost of £2,000 per pupil, not the full £5,000 charged to other pupils.
sir this is a statement from BPP study text. I had a doubt in this statement. Here they say that 'taxable value of the benefit to the employee= marginal cost of provision of services'
but my doubt is that the taxable benefit for the employee should actually be,
Price for others- cost for the employer(or amount paid by employee)= taxable benefit for the employee.
This should be the taxable benefit (not the marginal cost of providing the service) because that is essentially what is the saving of the employee as a direct result of his employment in the company.
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other benefits
saving=benefit(taxable) and hence my rationale.
i understood my mistake sir. sorry for bothering you.
Sir just ignore everything i have said above. and just read the following question:
A private school offers free places to the children of its staff. The actual cost to the school of providing the place is £2,000 in a tax year, although the fees charged to other pupils is £5,000 in a tax year. The taxable value of the benefit to the staff is the actual cost of £2,000 per pupil, not the full £5,000 charged to other pupils.
So the taxable benefit for the employee should actually be 5000pounds because that is what the employee is saving as a direct result of his employment. Had he not been employed, he would have to dole out 5000pounds but simply because he has a contract for service he is getting it for free. So essentially saving is of 5000pounds=taxable benefit.
so can you clear my immediately aforementioned question?
If the employee works for the school - the school is the employer - then the benefit is the marginal cost of providing that service not the open market price.
If the school is not the employer and the employer pays the school fees,
the benefit will be the full market price paid by the employer.
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