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Benefits in kind are benefits that employees or directors receive from their company which aren’t included in their salary or wages. They’re also sometimes called ‘perks’ or ‘fringe benefits’.
Not all benefits in kind are treated in the same way by the tax system. While some aren’t taxed others will be, and it can be hard to understand where you stand. As well as the impact on an employee’s personal tax, National Insurance Contributions are payable by companies on the benefits in kind provided in a tax year. That can make it all a little confusing – how do you know which ones apply to you and which ones don’t?
Thankfully, help is at hand – this article will help you work out what counts as a benefit in kind, which ones apply to you and how to report them to HMRC.
Benefits in kind can be thought of as assets or services (or ‘fringe benefits’) used personally by an employee but where the company pays for the access to these fringe benefits. When you receive anything from your company which benefits you personally, and isn’t “wholly, exclusively and necessary” for the purposes of your business, it’s likely you’ve received a benefit in kind.
Benefits in kind are taxed in order to prevent you from replacing your salary with another benefit. The taxman wants to make sure they get everything they should! It’s a good idea to consider them as cash equivalents which contribute to your income.
There’s a wide range of benefits in kind – from company cars to private healthcare – that may need reporting to the taxman.
Here’s a run-down of some of the main types of benefits in kind that will incur tax:
Some benefits do not incur any tax. However, there are complex rules around each type of benefit and a range of circumstances which HMRC will take into account before deciding if you have tax to pay or not. We recommend you speak to one of our expert accountants about your individual circumstances to find out if tax is payable or not.
A few examples where circumstances may mean no tax is paid include:
Benefits in kind are reported on a P11D form; as benefits in kind effectively increase your salary, there may be National Insurance contributions to be paid on them. It’s important to note that these contributions will be paid by the company, rather than the individual.
Helpfully, P11D filings don’t depend on your company year – instead all forms need to be submitted by 6th July following the end of the relevant tax year.
If a company offers its employees any of the taxable benefits in kind examples listed above, they’ll need to be included on your P11D.
A company will also need to file a P11D(b) form, which summarises the individual P11D forms they’ve completed for their employees and how much National Insurance will need to be paid on all the expenses and benefits they’ve provided.
Additionally, it’s a statutory requirement for companies to operate a system for validating employee expense claims. It’s therefore important to keep all receipts and complete expense forms.
If you’re confused by the P11D and P11D(b) forms, our article ‘What is a P11D?’ can help.
If you’re a Crunch client and want more information on how to file a P11D in your Crunch account, check out our help centre article.
We recommend you discuss any benefit you plan to offer your company’s directors and employees with one of our expert accountants. As you can see, the rules around benefits in kind are complex and each example needs to be looked at based on its individual circumstances to see if any tax is payable by the employee and/or your company.
If you spend time working from home, then depending on the work you do, you might be able to claim expenses back for using your home as an office, either by claiming for office equipment like computers and furniture, or even renting part of your home to your company. We break down the rules.
Over the last few months of 2017 and the whole of January, client managers are busy reminding people of upcoming deadlines and things they’ll need to do to make it easy for them to keep on top of their Self Assessments.