Benefits in Kind
Benefits in kind are benefits that an employee or director gets from their company, and which are not considered part of their normal salary. Often referred to as ‘perks’, such benefits include company cars, meals and forms of entertainment.
Once only for executives, such perks are now offered to a large number of employees across every industry, regardless of the size of the company. With HMRC now considering a growing number of such services and goods as being open to tax, it is important to know where you stand to avoid any problems down the line.
Different taxation rules apply to such benefits, with some benefits in kind, not the subject of taxation at all. As such, the rules surrounding such perks can often be confusing, particularly for business owners with little prior experience of such matters. To muddy matter even more, NICs are also payable on such benefits – something else that you must factor in when providing such benefits. The following information is designed to give you a better understanding of what counts as a benefit in kind, as well as which apply to your business and how you go about reporting such information.
A benefit in kind
In very general terms, a benefit in kind is an asset (such as a car) or service (such as gym membership) that an employer provides to an employee, with the employer paying for this benefit. Such assets often benefit an employee personally and are not used exclusively for work purposes. Such benefits in kind are taxed so as to prevent businesses from using them to supplement low wages and therefore reduce their taxes. If you are an employer or employee, it is good practice to consider any such benefits in terms of cash added to your normal income. As you can imagine, there is a wide range of products and services that HMRC now consider to be benefits in kind – some examples of which are below:
- Company cars
- Any asset that an employee uses a lot personally
- Private health insurance
- Self-assessment fees paid by the company
- Non-business travel & entertainment expenses
Benefits in kind that avoid tax
You will be pleased to know that there are some benefits in kind that are exempt from tax. However, as you can imagine, such cases are not common, and HMRC will first consider a number of factors before deciding whether you will have to pay tax or not. Because of such confusion, you are always recommended to speak with a qualified financial expert before making any decision regarding benefits in kind as they will be able to better advise as to whether it will qualify for no tax or not. Whilst cases are often considered on an individual basis, the following areas are examples of those where you may not be required to pay any tax:
- Business expenses claimed by an employee on a company credit card. (This does not include ‘personal’ purchases or items covered by specific tax law, such as fuel for a company car)
- Employee canteen meals (providing costs are kept ‘reasonable’)
- Certain travel costs – such as if a work bus service is provided
- Any work and safety clothes required to perform duties, such as protective gloves
- Mobile phone contracts between a company and the phone provider
- Any work-related training
Who do you tell and how?
It is important that you keep accurate, up-to-date records of any and all benefits in kind provided to employees, or yourself if you are a company director. This is because you will be required to supply such information, and therefore having it at-hand and without any ‘holes’ in your records will help you avoid any problems and possible fines. Furthermore, companies are now required by law to validate employee expense claims – something that can be done much easier with good records in place. Benefits in kind are reported using a P11D Form and must be submitted by 6th July at the end of that tax year. Any such benefits, like those listed above, must be included in your P11D Form. Whilst these benefits in kind are subject to NICs – these are paid by the company, not the employee. This rate is calculated at 13.8% of the determined value of each benefit in kind.
Seek advice if you need it
Tax law surrounding benefits in kind can be confusing and all too often a business owner will simply shy away from offering such perks. This is not advised as the use of such benefits for employees is now widespread – and seen by many employees as an important benefit for their hard work. Furthermore, such benefits, if you advised well, will not be as expensive as you think. As such, if you are considering providing employers or yourself with goods or services that you think may fall under the ‘benefits in kind’ classification, you are advised to speak to a qualified accountant.
Whilst complicated and dependent on your own individual situation, the tax laws surrounding benefits in kind can be easily navigated once you know what you are doing. Speaking to a financial advisor will help you find the best solution for you and ensure that you do not fall foul of any financial penalties.
Whilst the issues surrounding tax law and benefits in kind may seem complicated – they are likely going to be a necessary part of your life as a business owner. You are therefore recommended to do as much as you can to make the process as simple as possible – including seeking advice and help when you need it. We hope the above information has helped shed some light on the subject and helped point you in the right direction as to your next move.