What Is A Benefit In Kind?
Have you ever received benefits in kind? Well, they are actually the benefits that most employees or directors obtained from their company that are not part of their salary or wages. Sometimes they are also known as “fringe benefits” or “perks.”
However, when it comes to the tax system, not all benefits in kind are the same. Some of these benefits are taxed while others are not. However, it is difficult to determine which is which. It also has some major effect on the employee’s National Insurance Contribution as well as the personal tax that will be paid by companies for the employee’s benefit in kind received in a tax year which is set at 13.8% of their determined value.
This can make it more confusing. How do you determine which one actually applies to you and which ones does not?
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The good news is this article can help you in figuring out what can be considered as a benefit in kind and which of these will apply to you and how will you report them to HMRC.
What Is A Benefit In Kind?
Benefits in kind can be considered as assets or services. Most often, they are used by the employee personally however the company will be paying for its access. Whenever you received something from your company that has given you benefits personally and it is not essential, exclusively, and entirely intended for your business, then most likely you have received a benefit in kind.
Most often, these benefits in kind are actually taxed. This is done to prevent you from substituting your salary with another benefit. At the same time, the taxman will ensure that they’ve got everything they should! You could regard them as cash equivalents which will be added to your income.
There are different types of benefits in kind, for instance, private healthcare, company cars and others. Sometimes it is required that you should report them to the taxman.
Samples Of Benefit In Kind
There are different kinds of benefits in kind, these are the examples of those that require tax to be paid. Private health insurance, company car, home phones for personal use, company paid self-assessment fees, non-business entertainment expenses, non-business travel expenses as well as assets that have significant personal use to an employee and are provided by the company.
On the other hand, there are also other benefits in kind that don’t require you to pay any tax. However, you need to understand that there are complicated rules surrounding every type of benefit and a lot of circumstances that HMRC will take into consideration when it comes to deciding whether you need to pay tax or not. You can speak to your accountant about your individual circumstances to discover whether a tax is payable or not.
Here are some examples where situations might mean that no tax is payable. The meals in the staff canteen that are provided to all employees. However, the meal should have a reasonable price. Travel expenses including work bus service. Work-related training provided to employees. Your company’s mobile phone contracts with the service provider. Work and safety clothes including hard helmets and overalls.
Business expenses paid by an employee using the credit card of the company. As long as your employee is not purchasing something that is of personal use. Or whenever there are certain tax rules that may apply, for instance, unexpected overnight expenses, parking spaces, or fuel for a company car.
How Do You Report A Benefit In Kind?
A P11D form is needed when reporting benefits in kind. Since this benefit will likely increase your salary, then there might be National Insurance contributions that will be paid on them. Take note that these contributions should be paid by the company instead of the individual.
P11D filings do not necessarily depend on your company year, rather all forms should be submitted by July 6 following the end of the relevant tax year. If your company provides your employees with any of the taxable benefits in kind that we have mentioned above, then you should include them on your P11D.
Your company is also required to file a P11D(b) form. This form will compile all the individual P11D forms that you have accomplished for your employees. You must also include the amount for the National Insurance which are required for all the expenses and benefits that you have provided. As we have mentioned earlier, any company should pay NICs at a rate of 13.8% based on the defined value of the benefit in kind.
In addition, it is required by law that companies must use a system that can validate employee’s expense claims. Hence, it is important that all receipts and completed expense forms must be kept.
We greatly recommend that if you are planning to offer some benefits with your employees and directors then you have to discuss this with your accountant. You have to realise that the rules behind these benefits in kind are complicated and each one of these benefits must be examined thoroughly based on the individual circumstances to verify if the tax should be paid by the employee or your company.