A pecuniary liability can occur when a monetary obligation is fulfilled by an employer, when by law, the liability was that of an employee. One example of this is the case of an employer paying a debt that an employee owes to a third party. The employer’s payment in this case is of direct monetary value to the employee because he or she no longer has to pay that amount of money to the third party. This payment is therefore treated as earnings in the hands of the employee and is taxable.

It does not matter for tax purposes whether the employer makes the payment voluntarily or under a contract. HMRC provides the example of an employee who has signed the application form for the supply of electricity or gas to her home, the employee is the customer and she will be the person who is billed. If the employer pays the bills for the employee, the employer is discharging the employee’s debt.

This principle has been applied in a number of cases including those relating to an employee’s Income Tax, employee’s rates, lighting, heating, other costs and the cost of employee’s petrol.