Do you want to learn more about what is a benefit in kind and how this may impact tax? Perhaps you are using benefit in kind to reward your employees for all their hard work, find out how you can reward your team using a benefit in kind.
When you’re in business, and you have a team of workers busily working away for you, a nice salary is a good perk to have, but is it always about salary for your team?
More and more employees are looking for additional perks and incentives from their employer to make their role better, and this doesn’t necessarily mean more money!
Sadly, the HMRC were quick to realise that by employers offering these perks, they were inadvertently paying their employees more without actually increasing their salaries, and therefore the HMRC were missing out on extra tax and national insurance deductions.
This meant an extra tax was brought in called a benefit in kind tax.
What is a benefit in kind, and how is it taxed?
A benefit in kind is an asset or service paid for by the employer that can be used personally by an employee.
If you provide an asset or service that the employee benefits from and isn’t a necessary part of the role they fulfill, then that is a benefit in kind given to the employee. The term wholly, exclusively and necessary is important here.
A benefit in kind is taxed in order to prevent you as an employer from replacing your employee’s salary with another benefit – and saving the extra national insurance contributions.
Some assets are necessary for their role, even if they can use them privately, and therefore are exempt from being a benefit in kind.
What perks are classed as a benefit in kind?
Believe it or not, not all benefits in kind are treated in the same way by the tax system!
Some inevitably are taxed, and there’s no way around that, but there are other options that aren’t taxed, which means tax savings for everyone!
Employees will see additional tax charges on a benefit in kind, and employers will pay National Insurance Contributions (NICs) on the benefit in kind assets or services provided in a tax year. These are taxed at 13.8% of their cash equivalent value.
Examples of a benefit in kind are:
- Private medical insurance
- Company car
- Self-assessment fees paid by the employer for employees
- Home phones where there is personal usage
- Non-business related travel & entertainment expenses
What benefit in kind perks can I give without the extra tax charge?
Luckily, employers can provide some perks to their employees without incurring the benefit in kind charge.
Examples of a non-taxable benefit in kind are:
- Safety or work clothing (helmets, overalls etc)
- Mobile phone contracts (must be between the employer and service provider)
- Work related training
- Business related travel including work buses
- Expenses paid for on a business credit card (as long as they are not personal).
How are benefit in kind perks reported to the HMRC?
A perk known as a benefit in kind is reported to the HMRC on a special form called a P11D. This benefit amount must also go on an employees tax return if they are required to complete a tax return, or alternatively the HMRC may tax it by changing an employees tax code, and it is taken via payroll instead.
Benefit in kind national insurance contributions on form P11D must be paid by the employer, rather than the employee.
Annoyingly, P11D forms are not linked to an employer’s year end. They run with the tax year, and have a separate deadline of the 6th July after the end of the tax year.
Along with a P11D, an employer must also complete a P11D(b) form, which summarises all the P11D forms completed for their employees, and how much national insurance needs to be paid to the HMRC on the benefit in kind perks provided to their employees.
How to provide a tax-efficient benefit in kind!
A number of benefits can be provided to employees without creating a taxable benefit in kind on the employee, and make their life so much better!
- Trivial benefits – small gifts or days out where the cost does not exceed £50 and it is not provided in recognition of particular services or as part of the employment contract. They cannot be cash!
- Mobile phone – The contract must be between the employer and the supplier.
- Christmas (or another type of event) parties – the annual cost of the party must not exceed £150 inc VAT per head.
- Pension contributions on an employee’s behalf.
- An interest free loan up to £10,000.
- An annual health check.
- Refreshments – must be reasonable
- Provision of a pool car – must not be used for personal use. Any private use would have to be incidental to business use.
- Provision of a company van – may be provided to an employee for business use only. Commuting from home to the employee’s workplace would not be classed as personal use.
- Job related living accommodation – there are particular rules which apply to this benefit.
- Relevant Life Insurance Policies.
By thinking of other ways to reward your employees for their hard work, you retain their skills within your business and are your business is much more likely to hit those all important business goals.