For employers looking to widen their recruitment options with the additions of extra benefits for their employees, benefit in kind will be a familiar term. These are ways for you to recognise the importance of your employees in your business, by offering them a little something extra other than a salary.
In a recent release from HMRC, private health or dental insurance is the most popular UK benefit, with over two million employees receiving this as an employee benefit.
A company car is the second most popular benefit in kind, used by nearly one million employees, according to HMRC’s release.
Benefits in kind explained
If you’re unfamiliar with the term, benefits in kind are any benefits received from an employer that does not come as part of a salary.
Also referred to as ‘perks’ or ‘fringe benefits’, benefits in kind are the benefits employees or directors receive from their employer.
Some benefits in kind are not taxed at all, some are taxed only for those not in lower paid employment and some are taxed for everyone.
Some benefits in kind have their own rules all together, such as company cars.
Tax-free benefits in kind
Benefits in kind aren’t taxed if they’re considered trivial, for example if they’re worth less than £50 in value, if they aren’t cash or a voucher, if they aren’t considered a reward or a bonus, or if they aren’t stated in the contract between employee and employer. A benefit in kind is also not taxed as long as there is no ‘salary sacrifice’ involved (according to Citizens Advice).
Employees won’t pay tax on some benefits in kind if they earn less than their personal allowance (£11,500 for the majority of people for 2017/18 tax year).
Making sure employees know they’re entitled
Benefits in kind are a great way of offering your employees incentives to help them stay motivated with your business. For example, paying for medical insurance and dental care will give employees some security with health, while acknowledging the importance of employees’ health and wellbeing.
If you want to begin offering a new benefit in kind, speak to your employees. While you may have a budget to work to, there’s no reason you can’t ask employees what kind of benefits they would appreciate the most. Even communication as small as this will help you build a stronger bond with employees and will help them continue to grow as loyal staff members within your business.
Your employees may not even be aware of the benefits in kind you currently offer, so ensure you speak to each new employee about what benefits you offer. If employees aren’t aware already, they’ll definitely appreciate you drawing their attention to it.
If you’re unsure what benefits to offer, here are some of the most common employers offer:
- Cars or vans
- Health insurance
- Mileage allowances
- Overnight expenses
- Travelling and entertainment expenses
What counts as a benefit and what should I report to HMRC?
You’ll record the benefits in kind you award to each employee or director when you complete a P11D form at the end of the tax year. You will complete one of these forms for each employee. You’ll also need to complete a P11D(b) form if:
- You’ve submitted any P11D forms
- You’ve paid employees’ expenses or benefits through your payroll
- If HMRC have asked you to in a form or by email
To determine what you need to report to HMRC, you should decide what category the benefit falls into. You can find all benefits and expenses categories here. By clicking through to the corresponding category, you will be able to see whether it’s necessary for you to report the benefit.
If it is necessary, you may report a benefit through:
- Payroll software
- HMRC’s PAYE Online service
- HMRC’s Online End of Year Expenses and Benefits service
As mentioned earlier, you may also complete the P11D forms and return them to the P11D support team at HMRC.