By Pamela Phillips
Every year we double-check with our clients if they have paid any benefits in kind to their employees or company directors. But what is a benefit in kind? And what does it mean if you have given these to employees?
What is a benefit in kind?
A benefit in kind is a non-cash perk paid for by an employer to an employee, including any company directors.
It’s not always easy to identify benefits in kind so there may be a few hidden in your company. You might not appreciate that they need to be declared to HMRC and that you need to pay tax on them.
Anything that’s paid to an employee which isn’t “wholly, exclusively and necessarily” in the performance of duties of employment, it is probably a benefit-in-kind.
What are the common benefits we see in agencies?
To help you spot potential benefits in kind in your business, here are the common ones we see in our agency clients.
When your company buys you a car this is a benefit in kind. The taxable benefit can be quite steep (unless it’s an electric car) and is based on the list price of your car.
You might have heard about pool cars. Perhaps a friend has suggested that you’d be better off calling your company car a pool car so that you don’t have to declare it as a benefit in kind (yes, we’ve had this conversation with a client recently). If the car is kept at the home of one of the employees then it is very likely there would be a benefit in kind charge for the employee.
If you are considering buying a new car then it is worth checking with us to see if you’d be better buying this through your company or not.
If you pay for non-business travel, including providing fuel for private journeys, this is a benefit in kind and needs to be reported on a P11D. Private journeys include journeys from home to an employee’s regular place of work.
If the company pays for gym membership for its employees this counts as a benefit in kind.
Unless you’ve got a particularly good deal on your gym membership by buying it through the company then it is best to keep this cost out of your business. If the membership is for a company director then we recommend you code the cost to the director’s loan account when you are doing the bookkeeping so as to avoid needing to prepare a P11d.
Private Medical Insurance
As for gym membership, this is a taxable benefit in kind for the employee.
Any non-business entertainment, such as staff entertainment, that is over and above the annual £150 per head allowance, is taxable on the employee as a benefit in kind.
Not all food provided to employees will count as a benefit-in-kind so it is worth taking a look at our blog Food and entertaining: what can be claimed to find out what needs to be included in a P11D and what doesn’t.
HMRC is clear that if an employer pays for an employee's home broadband, this would be a benefit in kind for the employee. This is even if the employee uses broadband to work from home. This is because the broadband will also be used, or available to use, for non-work purposes and it is unlikely to cost the employee anything extra to also use it for work.
If an employer pays for a mobile phone that's in the employee's name then this is a benefit in kind. However, if the phone is in the company’s name and is paid for by the company then there is no benefit in kind (for up to one phone per employee).
Self Assessment Fees
Often company directors pay the accountancy fees for their self-assessment tax return through their company. This is a benefit in kind and we recommend that the cost is coded to the director’s loan account when doing the bookkeeping to effectively reimburse the company for this cost and avoid having to file a P11d.
The company can pay for training for an employee to build on existing skills or to develop new skills. The training must be ‘necessary’ for work otherwise it may count as a benefit in kind. For example, paying for ski lessons for a market researcher would be a benefit in kind but paying for a training course to develop their time management skills would not be.
Loans to employees and directors
If a company director or employee has an interest free loan from the company this counts as a benefit in kind and may be taxable. An overdrawn directors loan account counts as a loan.
Assets provided to an employee that have significant personal use
This could be anything from buying an iPad through the company that is also used as the family device through to buying a suitcase for a business trip (yes, we’ve seen suitcases going through a business).
Not all benefits are taxable
Whilst it may seem that everything is taxable on the employee, there are still quite a few tax-free perks that you can offer your team. Make sure you are making the most of the tax free benefits available to you.
How to report benefits in kind
Each year any benefits in kind need to be reported to HMRC and your employees on a P11D form.
Employees will pay tax on their benefits in kind and employers will pay National Insurance at 13.8% on the value of the benefits.
Payrolling benefits: Spread the cost for employees
For benefits that are paid regularly during the year, like health insurance or company car payments, it can help employees to spread the tax cost over the year by payrolling the benefits.
PAYE Settlement Agreement
What if you don't want your staff to incur the tax and NI on the benefits you give them? You can always consider setting up a PAYE Settlement Agreement (PSA).
Need some help?
The rules around benefits in kind are complicated and it can be costly to both you and your employees if staff perks are not planned and managed carefully.
Get in touch with one of our expert accountants for tax-efficient benefit in kind planning.