There are multiple ways of motivating your employees from time to time, and benefit in kind is one way of doing that. These perks are not included in your employees’ salaries or wages. You may also find it interesting that not all the benefits come under the tax net. Yes, you heard it right. Benefit in kind contains a range of benefits, some of which come under the tax net, some not, and some in the grey zone.
However, like you many businesspersons are not completely aware of these tax benefits and miss out a lot of savings. For this reason, we have come out with this blog that will make you understand what benefit in kind is, which are those benefits that give you tax benefits, and how should intimate the HMRC about it.
Let’s get on with it.
A Guide to Benefit in Kind
Benefit in kind are basically cash payments or delivery of goods and services made to your employees that are outside the PAYE system. For example, rewards for doing job well will be included in the salary but giving a company car will not be included, that comes under the benefit in kind.
If you are giving benefits to your employees, then it is your duty provide the details to the HMRC either by including the value of benefit on the payroll or by completing the P11D form. If you are making payment to your employees through PAYE then it is your obligation for payment of National Insurance Contribution NIC and taxes on their salaries. Similarly, you are also required to pay tax and NIC on benefit in kind.
Examples of Common Benefits
There is a long list of expected benefits, but we have listed some widespread benefits. If you need more clarity on it, then you can get help from CoxHinkins accountancy services.
Company Cars
Companies offering cars to their employees are well-known benefit in kind. If you are giving the car to an employee that your business or company owns or leases, it is called a company car. However, if you can use it for private or business purposes, employees will have to pay tax on the value of the benefit.
Healthcare
Covering your employees with health insurance is a taxable benefit.
Providing Accommodation
Paying for your employee’s accommodation will come under the taxable net. We will elaborate on this to help you understand it better. Suppose you are offering accommodation to your employees that is rent-free or below the market price. The difference between the rent the employees pay and the value of rent that the employer pays will be considered a benefit.
Home Phones
It has been made amply clear by the HMRC that phone lines installed in your employee’s homes will come under the tax net. The reason for this is that your employees use it for personal purposes.
Meals
The rules for meals for employees are a bit complicated. For example, you must already be providing benefits such as subsidised or free meals for your employees on the work site or paying food allowances to employees who work away from the site. Furthermore, if you are providing food vouchers or cash, then that will be considered a benefit.
Which Benefits Are Tax-Free?
By now, you must think that most benefits are taxed, so what is the benefit of it? But you would be pleased to know that there are many benefits that are not taxed, and no NIC is required. In many cases, there is no reporting requirement, so the administration burden is reduced considerably. Let’s take a look at these benefits.
Pensions
The UK government is very interested in the welfare of employees. For this reason, it has provisions that encourage employers to make retirement provisions and introduced employer payments into non-taxable pension schemes. There will be limits as to how much you can pay in, but it will be non-taxable for most.
Cycle Provision
To promote eco-friendly traveling, the UK government has started promoting a cycle-to- work scheme. Under it, your employees can get a loan to buy bicycles and related safety equipment. You can also buy these cycles and offer them to your employees and get tax benefits, but there is a condition that they can only use them for traveling to the office and back home.
Mobile Phones
You can get tax benefits if the phones are purchased in your name and your employees keep their personal use to a minimum.
Charging for Electric Cars
As mentioned above, the UK government is actively promoting eco-friendly measures, including the active promotion of electric cars. For this reason, you can now offer tax-free charging points for your employees.
Car Parking
There will be no tax on parking space for your employees who travel to work by car.
Childcare
Under childcare, you can offer your employees childcare or vouchers or direct them to the government’s direct childcare benefits.
Accommodation
If accommodation is necessary for your employees so that they can safely discharge their duties, then it will be considered tax-free.
Work From Home Allowance
You can give your employees a tax-free allowance of £6 per week to cover the costs of working from home.
Staff Event Allowance
Events such as Christmas parties or picnic sponsored by you can be claimed as tax-free.
Reporting Requirements of Employers
If you provide your employees with any kind of benefit, it is your responsibility to notify the government each year. For that, you will have to produce a form P11d for each of your employees. The form contains details of the benefits provided to each employee, and it should be given to them after the end of the tax year so that they can complete their self-assessment returns.
Once it is done, you must complete the P11D(b), a list of all individual forms, and submit it to HMRC. You will also be required to submit P46 (car) for an employee who gets a new company car or a replacement in that year.
How to Manage Your Benefits In-Kind
As mentioned above, whatever benefit you provide to your employees must be reported to the HMRC. To do that, you will have to file the return on P11D, which contains the benefits and expenses for the tax year. It must be sent to the HMRC by 6 July, and a copy must be given to the employee on the given date.
Moreover, you must also file a P11D(b) that summarises each employee’s P11D form. The P11D(b) form should show how much NI is due on all expenses and benefits.
Producing the P11D(b) form is much easier, especially when you have already noted the benefits in the first place.
Your HR team should be able to track all the benefits provided to employees, but make sure that the reporting is suitable for making the P11Ds. In this case, you can help your HR team by incorporating P11D software to take all the information and produce individual employee forms and P11D for submission to the HMRC.
If your HR team cannot cope with this work and investment in the P11D software is not possible, you can consider partnering with a specialist accounting firm that understands the rules of the game, is well-versed in the software, and offers a cost-effective option, such as CoxHinkins.
Conclusion
The main goal of this blog is to make you understand the rules applicable on you while offering benefits to your employee’s benefits. Furthermore, importance must be attached to keeping track of whom you are giving the benefits and what benefits you are giving so that you can produce P11D forms at the end of the tax year without any trouble. If you need any assistance in this, CoxHinkins is always there at your service. We can connect with you on-call or in an online meeting at your convenience so that we can understand your requirements and explain our services in detail.
Disclaimer: Kindly note this blog provides general information and should not be considered financial advice. We recommend consulting a qualified financial advisor for personalised guidance. We are not responsible for any actions taken based on this content.
