Heaton v Bell [1970] AC 728

Facts

• National Coal Board workers received coal at a reduced price as a benefit of their employment.
• Workers were prohibited from converting this price reduction into cash.
• The tax authorities asserted that the taxable value should be the difference between the market price of the coal and the price paid by the workers.
• The appellants, Mr. Heaton and Mr. Bell, argued that, as they could not realize the benefit as cash, its taxable value should be much less than the market difference.

Issues

1. Whether the taxable value of a non-cash employment benefit should be determined by the difference between its market value and the price paid by employees, or by the cash that the employee could actually obtain for the benefit.
2. Whether restrictions on an employee’s ability to convert a benefit into cash must be taken into account when valuing that benefit for tax purposes.

Decision

• The House of Lords held that the taxable value of a non-cash benefit should reflect the amount of cash the employee could actually obtain, not merely the market value.
• As the workers could not convert the discounted coal or the price reduction into cash, the full market difference could not be used as the taxable figure.
• The presence of restrictions on use or transfer of the benefit must be considered to ensure the taxable amount reflects the real financial advantage received.

Legal Principles

• The “cash equivalent” rule requires that non-cash benefits are valued for tax purposes based on the actual amount of cash the employee can realize.
• Valuation must always consider any restrictions or limitations on the employee’s ability to use, transfer, or monetize the benefit.
• This approach distinguishes Heaton v Bell from prior decisions, such as Wilkins v Rogerson, depending on whether the employee could resell or realize the benefit’s market value.

Conclusion

Heaton v Bell [1970] AC 728 established the “cash equivalent” principle for taxing non-cash employment benefits, requiring consideration of actual realizable value and any limitations on conversion to cash. This standard remains central to UK tax law regarding non-monetary employment income.