Some employers provide perks, known as Benefits in Kind (BiKs), to employees and directors that aren’t part of their salary, such as:
- Company cars used for private trips
- Non-business entertainment
- Assets bought by the company that are for private use
- Private health insurance
- Gifts which are given as a result of the employee’s performance
- Vouchers that can be exchanged for cash
Are Benefits in Kind subject to tax?
In short, yes, BiKs are subject to tax and National Insurance Contributions (NICs). Back in the day they were a way to add value for employees, without suffering tax or National Insurance.
Naturally HMRC decided to take action, so these days you’ll need to record the details, and report them to HMRC to make sure you and your staff pay the right amount of tax.
Are there any exceptions?
There are some exceptions, either because they’re too small to count, or because the government sees them as a good thing to do.
For example, you’re allowed to pay for a health check-up for employees, or pay into a pension plan subject to certain limits. HMRC have more detailed guidance on what is not included, but tax-free benefits that you can provide might include:
- Trivial gifts with a value of up to £50 as long as they’re not to reward performance at work
- Workplace parking
- Mobile phones
- Christmas parties and events up to £150 per head per annum
- Annual health check
- Workplace training
- Professional membership fees
- Business travel
- Meals when away from the normal place of work
BiKs don’t include business expenses incurred as part of conducting business, like train travel to a client meeting, or buying stationery to use in the office.
How do I pay tax on Benefits in Kind?
The way that you pay for taxable benefits affects the way they’re taxed. For instance, if an employee pays for the benefit themselves and you reimburse them through payroll in addition to their wages, the total amount which goes through payroll is subject to tax and NI.
But if the company pays directly, or reimburses the employee outside of payroll, the tax and National Insurance will still need to be accounted for. This is where the P11D comes in.
What’s a P11D?
The P11D form is used to tell HMRC about any untaxed benefits you give to employees and directors. The key word here is ‘untaxed’ – if you already make the deductions through payroll, then you won’t need to submit a P11D.
Submit the form once a year either through your payroll software, using HMRC’s PAYE Online service, or by downloading and posting it.
How do I record information about Benefits in Kind?
You’ll need to pay the right amount of tax for the right employee, so it’s essential that you record who receives perks from the business, and the value of what each person receives.
Being able to see the ‘package’ that each employee or director receives is useful for all sort of reasons, making it easier to make decisions about salaries or potential savings.
If you pay BiKs through your payroll system then the payments will be included in your monthly payroll report. Because they’ve gone through payroll already, they won’t need reporting using a P11D, but it’s still useful to categorise the transactions in your accounts – like you would with any other business cost.
That way you’ll know the date, amount and person in receipt of any benefits or perks that you provide.
BiKs can’t be ignored
The important thing to remember with BiKs is that HMRC always looks at benefits when they carry out an inspection.
Failing to properly record and report BiKs, let alone not paying any tax and NICs due, will almost certainly result in penalties – with interest on the amount that should have been paid. It’s much cheaper to make sure you have a robust recording method in place!