Benefits in kind (sometimes referred to as ‘perks’), are benefits employees or directors receive from their company which are not included in their salary or wages.
A guide to Benefits in Kind
These are payments, either made in cash or through the provision of goods or services that you make to your employees outside of the PAYE system.
If you pay people through PAYE, then you are responsible for the payment of tax and NIC on their salaries.
You are also responsible for paying tax and NIC on benefits in kind and in this article we are looking at what constitutes benefits in kind, and what you must do as an employer.
- Examples of a common benefits
- Which are tax-free?
- Your reporting requirements
- How to manage your benefits in kind
Any cash payment you make to employees should go through the PAYE system. Benefits in kind relate to other non-cash benefits that may be given, either as part of the employee’s package or on-off benefit or perk.
Examples of common benefits
This is a list of just some of the more common benefits. If you are ever unsure, we would always suggest that you talk to us first if you are thinking of offering some form of benefit to your employees.
Cars are probably the best-known example of a benefit in kind. There are specific rules around the taxation of company cars and businesses need to make sure that they apply these throughout the year.
Providing health insurance for your employees such as BUPA or SimplyHealth is a taxable benefit as is paying for healthcare directly
(Employers can provide free health screening each year and help with medical bills up to £500 if it is designed to help the employee get back to work quicker) .
If you pay for an employee’s accommodation expenses then these will be taxable but do see the section on tax-free benefits in kind as there are some exceptions.
One of the benefits that has come under scrutiny during the COVID lockdown is the provision of a home phone line for taking or making business calls.
HMRC is very clear that a phone line provided in the home by the employer will be taxable as there will inevitably be personal use but see the tax-free section on mobile phones for a solution.
There are complex rules around meals for employees. Employers can offer subsidised or free meals for employees on-site and can pay a subsistence allowance for employees working away from the office, but other meals will be taxable.
Loans can be made to employees but there are specific rules around how they should be made, whether interest should be charged and when they should be repaid. The rules also change if the employee is a director of the company.
Which benefits are tax-free?
The good news is that there are a series of benefits for which no tax or NIC is payable. In most cases, there is no reporting requirement and so the admin burden is reduced on the employer too.
- Pensions – The government is keen to get people to make provision for their retirement and introduced employer payments into a pension scheme non-taxable. There are rules around how much you can have paid in, but for most people, this will be a non-taxable benefit.
- Provision of cycles -the government introduced the ‘cycle to work’ scheme which gives employees the opportunity to get a tax-free loan to buy a bike and associated safety equipment. Employers can also buy cycles and lend them to employees with no tax implications, as long as they are used for travelling to or from work or for work purposes.
- Mobile phones – as long as the contract is in the employers’ name and private use is kept to a minimum, it is possible to provide a free phone and calls to employees.
- Electric car charging – electric cars are gaining in popularity and employers are beginning to provide tax-free electric charging points for people to use.
- Car parking – for staff that must travel to work by car a car parking space can be made available with no tax charge payable.
- Childcare – there are two schemes available, employer-provided childcare or vouchers up to £55 per week or the government’s direct childcare choices offer.
- Living accommodation – If accommodation is needed for the employee to carry out their duties or for their safety then it will be tax-free. It is also important to note that special rules apply for directors of the company.
- Trivial gifts – as of April 2016 employers can give employees gifts to the value of up to £50 as long as they are not:
- Cash or a cash voucher.
- Given in return for work done or to be done.
- Taking the total value of trivial benefits given to the employee to more than £300 for the tax year.
- Homeworking allowance – There is a tax-free allowance of £6 per week which can be paid to employees to cover the costs of working from home.
- Staff event allowance – probably one of the most appreciated tax-free benefits is the events allowance. Companies may provide events like Christmas or summer parties up a total value of £150 per head per year.
There are many more examples of assistances that employers can provide to their employees and in all cases, there are rules around benefits in kind so if you are in anyway unsure then please contact us and we’ll talk you through them.
Your reporting requirements
Employers are obliged to report benefits in kind to the government each year.
To do this you will need to produce a form P11d for each of your employees. These details the benefits given to each person and should be supplied to your staff after the end of the tax year to allow them to complete their self-assessment returns.
When you have done this, you will then need to complete the P11d(b) which is a summary of all the individual forms and submit this to HMRC by 6th July.
Throughout the year you should submit P46(car) for any employee who gets a new company car or receives a replacement. This allows HMRC to adjust their tax code so that they do not get a big tax bill at the end of the year.
How to manage your Benefits In-Kind
The main message when you are wanting to manage your BIKs is to get organised!
It is so much easier to produce your P11d(b) if you have been identifying your benefits as you go along.
Often providers like healthcare insurers will be able to provide you with reports of the value of insurance given to individual employees and where this is available you should take advantage of their offer.
Your HR system may have the ability to track benefits given to employees but do make sure that the reporting is suitable for producing the P11ds.
You can invest in specific P11d software that will take all your information and produce the individual employee forms and your P11db for submission to HMRC. The other option is to outsource the process to a specialist that already has the software in place and understands the rules.
This can often be the most cost-effective option as the time your staff have to spend understanding the rules, learning the new software, and finally producing the documentation can be extensive.
Benefits in kind can be confusing
This is just a brief guide of some of the main types of benefits in kind, as the list is quite extensive. The main message is whenever you are looking at offering a new benefit to your employees or Directors, then you need to make sure that you understand the rules that apply in your case. Make sure that you keep track of what you give and who you give it to so that you can produce your P11ds at the end of the tax year.
We’ve found some useful guidelines on the Government’s website but if you want to talk over anything that has been discussed above and how we can help, then simply get in touch and we will be happy to have a chat or talk through any tax or accountancy question you may have on 020 8577 0200.