Benefits In Kind are classed as benefits that employees or directors receive from the business that is not their salary or wages, they can also be referred to as employee ‘perks’ or ‘fringe benefits’. If you receive anything from a company that is not wholly and exclusively for the purpose of the business, it is most likely that it is a benefit in kind.
Benefits in kind (BIKs) are taxed to prevent employers from reducing salaries and topping them up with free benefits, the government currently imposes both income tax payable by the employee and Class 1a NI to be paid by the employer in respect of all taxable BIKs. It can be confusing as to what benefits are taxed, and how, as there are some exempt benefits and some (such as company cars) that require specific calculations.
Common of benefits in kind include:
- Company Car available for employee’s personal use
- Private Health Insurance
- Home Phones with personal use
- Fuel for company car
- Accommodation paid by business
- Interest free loans over £10,000 (including Director loans)
- Pecuniary liabilities (personal costs settled by the company)
Luckily, there are a tax-exempt benefits including:
- Pensions that are to an approved personal pension scheme
- Staff annual events that are not over £150 per person per year (must be available to all staff)
- Childcare services that are in house at the place of work
- In-house leisure facilities at the workplace
- Meals – Free canteen meals or vouchers
- Payments towards employee’s household costs up to £4 a week without evidence
- Travelling costs for work
BIKs are most commonly reported on a P11D form. This increases the amount the employee earns for tax by adding the value of the BIK to their earnings, which therefore increases the income tax that an employee will need to pay depending on the tax rate they are in. The employer will also need to file the P11D(b) to declare the amount of Class 1a Employer’s National Insurance that needs to be paid on all expenses and benefits that they provided in the tax year. The rate of Class 1a NICs is 13.8% of the determined value of the benefit in kind (there was a temporary uplift to 15.05% between 6th April 2022 – 5th November 2022).
BIKs can also be reported through the payroll, however a form P11d will still need to be filed at the end of the tax year to report the Class 1a NICs.
The cost of the benefits in kind are allowable expenses that can be deducted form the trading profits of a company which, therefore, reduces the corporation tax due at the end of the company’s tax year.
It is the Employer’s responsibility to declare the BIKs that have been issued. To do this, they must complete and submit the P11D form to HMRC by the 6th July following the 5th April of the tax year in which the benefits were received. For example, the P11d for the 22/23 tax year must be filed with HMRC by 6th July 2023. Once filed, employers must issue a copy of the employees’ P11d to them by the 6th July.
For employees, they will pay income tax on their BIK and this will be deducted through the payroll as this is often administered by HMRC changing the current year tax code to collect the tax owed from the previous year in which the BIKs have been reported. Once the P11D has been received by the employee, they should check that the benefits and value have been reported correctly and understand how their tax code will be changing in the current year.
Get in touch with a member of #TeamSAS for more advice or guidance
