Benefits in kind are benefits employees or directors can receive outside of their usual salary. They are also referred to as ‘perks’ or ‘fringe benefits’ and can include things like company cars or private medical insurance. Knowing how benefits in kind are taxed is important, especially in the point of view of the company. This post will light shine on everything you should know about them.
What counts as benefits in kind?
Knowing what counts as a benefit in kind can seem confusing at the start. You can view them as assets or services employees use personally, but for which the company in question is paying for the access. They are things that benefit the employee personally and which don’t wholly and necessarily benefit the purpose of their work or business. The employee doesn’t necessarily need those benefits to work but they are still related to the work they do.
Some of the main types of benefits in kind include things like:
- A company car
- Private health insurance
- Home phones with personal use
- Non-business travel expenses
- Work and safety clothes
- Work-related training
The above are just some examples of benefits in kind and you should always consult a specialist or HMRC if you’re unsure if a certain benefit counts as a benefit in kind. It’s also worth checking out the HMRC’s list of expenses and benefits from A to Z.
How are benefits in kind taxed?
One of the key things to know about benefits in kind is that they aren’t all treated the same under the tax system. Certain benefits are taxed and some aren’t. For example, in our above list of examples, the last two benefits in kind are tax-free, while the others will incur tax. There are complex rules around each type of benefit and it’s certainly advisable to speak to a tax expert about the individual circumstances surrounding your situation.
Examples of common tax-free benefits in kind
We listed two common tax-free benefits in kind above and here are some other benefits you don’t typically need to enter on your tax return:
- Employer-paid contributions into approved occupational personal pension schemes as an employee
- In-house sport facilities
- Counselling services to redundant employees
- Subsidies to use public bus services to get to work
- Genuine personal gifts given for reasons unconnected with the job, for instance, wedding gifts
- Equipment and facilities provided for disabled workers to carry out their roles
Furthermore, a benefit in kind can be considered ‘trivial’ in which case it doesn’t need to be taxed. The qualifications for a trivial benefit in kind are:
- Less than £50 in value
- Not cash or a cash voucher
- Not a reward or bonus for performing well in the role
- Not part of the employment contract
- Not a ‘salary sacrifice’
How to value benefits in kind for tax purposes?
If the benefits in kind fall under the taxable category, the payable tax is determined by the taxable value of the benefits. This is defined by HMRC as the cash equivalent value and usually means the amount it cost the employer to provide that benefit to the employee.
However, certain benefits in kind have special rules for calculating the taxable value. A good example is company cars. The value for taxation purposes is calculated based on the car’s list price, the vehicle’s carbon dioxide emissions, the kind of fuel the car uses, and the date of registration of the vehicle. It’s also worth noting that cars are not always a taxable benefit in kind. Therefore, it is a good idea to contact a tax specialist to help you calculate the taxable value and make the correct tax declaration.
How to declare and pay tax on benefits in kind?
When you get any taxable benefits in kind or give them to your employees, you will need to declare them in your tax return. The good news for many employees is that they don’t have to worry about the tax cost too much – the employer takes the tax employees owe from their earnings through the Pay As You Earn system (PAYE). However, if you as an employee need to fill out a tax return, you need to enter the value of your benefits in kind on the Employment page even if the tax was paid through PAYE.
It’s also worth noting that aside from the impact on the employee’s personal tax, benefits in kind also influence the company’s National Insurance Contributions. Companies need to pay 13.8% of their determined value on any benefits in kind they provide.
Benefits in kind are reported on a P11D form and, as mentioned, the contributions are paid by the company rather than the individual. Companies will also need to file a P11D(b) form that summarises all the individual forms they have completed for their employees. It also summarises how much National Insurance will be paid on all the different benefits in kind the company has provided.
As an employee, you want your employer to provide you with a copy of the form to ensure you are aware of the benefits in kind you’ve received and how the employer has calculated the value of them.
Get professional help with benefits in kind
Benefits in kind are not the most straightforward benefits companies and employees have to deal with. Because of the complexity in determining whether the benefits are taxable or tax-free and the numerous ways of calculating the taxable value of benefits in kind, professional advice is crucial. A tax specialist can help determine the value and ensure you declare the benefits accurately in your tax returns.
At Devonshire Green, we know how to deal with benefits in kind. Our small business experience helps us sort out your tax duties and make sure you take advantage of using benefits in kind. Contact us today to have a chat with our tax specialists!
