Whether you are an employer or employee, knowing what a benefit in kind is and how this will impact how an employer and employee will pay tax and national insurance contributions is important.
We will outline below what a benefit in kind is, how the value of the benefit will impact you, and what you need to do if you receive a benefit in kind.
As expert accountants, we can assist you with enquiries on all forms of taxable benefits. If you would like further assistance or more information about the services we can provide, please do not hesitate to contact our friendly customer service team for more details.
Benefits in kind are benefits that are paid to an employee or director of a company in addition to wages. There are numerous benefits that can be offered to an employee, also referred to as fringe benefits. Some of these fringe benefits will be non-taxable, such as free meals, while some will fall under the heading of a taxable benefit.
In addition to income tax due to be paid on a benefit in kind, there are also implications for employee national insurance contributions. Any taxable benefit that is being paid to an employee or director needs to be accounted for when company accounts are submitted to HMRC.
This prevents companies from paying employees or directors exclusively in tax-free benefits. The value of the benefit will be calculated after all the expenses relating to the same benefit have been deducted. The total amount of the benefit is then taxed accordingly.
There are a number of common benefits employees or directors receive; they include:
You will need to keep track of the benefits in kind paid to all employees within a tax year to ensure that the monetary value is accurately taxed.
If you have a fuel card or fuel allowance in addition to your company car, you may be taxed on this. You would pay tax on fuel for your company car only if you use the fuel card for personal use.
Company cars are taxed similarly to the fuel benefit example; if you have private use of the car, then this will be counted as a benefit in kind. If you use the vehicle exclusively for business use and the business owns the car, then you will not need to pay additional income tax on the vehicle.
The value of the taxable benefit for the car for any financial year is calculated with the list price of the car, the cost of any additional extras, the vehicle’s carbon dioxide emissions, the registration date of the car, and the type of fuel that is used.
A calculation can be completed online to check the approximate value of a car benefit in kind before you take the vehicle.
Taxable benefits in kind are any benefits an employer pays in addition to the allocated salary. Benefits in kind may form part of the initial job offer shown in an employment contract or could be offered at a later date.
The taxable value is what will be used to determine how much additional tax will be paid each tax year by the employee. This is also known as the cash equivalent of the benefits in kind.
Benefits in kind can include anything in addition to wages; we have covered multiple examples below.
You will receive a P11D from your employer, which will detail the benefits in kind that you have received in a tax year. You can opt to pay the tax charge on the benefit via your PAYE code as soon as you are aware you will receive a benefit in kind. To do this, simply contact HMRC to give details of what you will be receiving.
Once the tax year has ended, the P11D and P11D b will be submitted by your employer to confirm the amounts you have received. The P11D and P11D b documents will verify the information included in your PAYE code or instruct HMRC on how much to deduct in future tax years.
The value of your taxable benefits in kind will then show on your PAYE coding notice each year. The amount you will be taxed on your benefits in kind will depend on the tax band that your total income falls into.
There are complex rules regarding certain taxable benefit types paid to employees, so if you are completing a P11D and P11D b; it is best to review exemptions on your payroll software or government website while completing.
The main exemptions for most benefits in kind will come down to if there is any personal use of the benefit in kind. For tax purposes, you can also provide employees with trivial benefits and incidental overnight expenses, providing they do not total more than a certain annual value each financial year.
Similarly to fuel for a car, you will only be taxed on fuel for a company van if you have access to the fuel for personal use. Unlike fuel for a car, van fuel is a set amount for each financial year.
The employee’s liability for benefits in kind is to pay all applicable national insurance and income tax payments. Employees can submit any business expenses that will reduce the amount of the benefit to the employer before the calculation is completed as to how much should be paid.
Some benefits received from your employer will be tax-free; for example, a car parking space that is available for your use when at work is not taxed. Also, certain types of childcare vouchers and living accommodation are included in additional exemptions and are therefore non-taxable.
The correct amount of taxable benefit will be reported to HMRC. However, if you are in any way uncertain of which benefits should be reported, we can help you. You can contact our team for a consultation regarding our services.
The employer should calculate the amount of taxable benefits for all employees who work for them within the required timeframe. They should then provide employees with confirmation of benefits in kind alongside confirmation of employees’ wages.
Private medical insurance is not always taxed in the same way as other benefits in kind, as a business will often have a group plan. Medical cover is one of the more common benefits that employers offer to their staff.
If the medical expenses for an employee satisfy certain conditions, employers can pay a set amount without this becoming taxable for the individual employees. This can become complex for both the employee and employers, so do not hesitate to contact us for more information and advice.
Reporting how much national insurance and tax need to be paid is very easy. With one form per employee and an additional form from the business, you can notify HMRC of all of the benefits given and expenses allowed.
If employers provide a home phone line for you, you will be taxed on this if you also use it for personal use. However, if you (the employee) do not have any personal use, you will not need to pay anything additional for the addition of a home phone line for business purposes.
This is similar to mobile phones; if the contract for the mobile phone is held between your employer and the phone company, employees will have no liability. However, if the mobile phone contract is between the employee and the phone company but is paid by the employe, this will be counted as a taxable benefit.
It is best to note that for any business calls made on a personal mobile phone paid for by an employer, employees can claim tax relief on the business calls to reduce the amount of the benefit received.
If your employer provides you with other assets that you will use for anything other than business purposes, you will be charged for the use of those assets. The charge is calculated at 20% of the market value of the asset on the date you began using it.
If you receive a low-interest or interest-free loan from your employer for any reason, this will be classed as a benefit in kind if the loan exceeds a set amount. If the loan exceeds the limit for that financial year, the benefit will be calculated at the difference between the official rate of interest set by the Bank of England and the more favourable rate given to employees.
This will depend if there is an additional cost to the business in providing you with the goods or services. If you work for a clothing company and receive free clothes, you will be taxed on the cost of the materials and labour to make the clothes. However, this would be at the basic cost to your employer rather than the retail price.
If, for example, you work for an airline and your employer gives you a free flight, there will be no charge for this as the flight would have been flown whether or not you were on it.
This will depend on which type of childcare scheme you have in place with your employer. If your employer has an onsite childcare provision, this could be exempt from being a taxable benefit. You may also choose to use a salary sacrifice scheme where part of your salary, before deductions are calculated, is given in the form of childcare vouchers.
This means you will pay less national insurance and tax on the value of the salary sacrifice, up to a maximum limit.
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