Recording Benefits in Kind in Your Bookkeeping

Some employers provide perks or benefits to employees and directors which aren’t part of their salary, but add value to the ‘package’ they receive. These extra perks are also referred to as benefits in kind, and can include things like:

Do I need to keep a record of benefits in kind?

Benefits in kind are subject to tax because they represent some form of payment, so it’s important to keep good records of who gets what in order to report everything correctly. In Ye Olden Times when these perks weren’t taxed, some employers would give them instead of paying the equivalent wages.

Naturally HMRC decided to take action against this form of tax dodging naughtiness, 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:

You won’t need to worry about benefits in kind if you’re reimbursing 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 you pay for any taxable benefits you provide affects the way you report and pay tax on them. 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 National Insurance.

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 form 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.

You can 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?

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 – just 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.

Being able to see the ‘package’ each employee or director receives is also useful for other reasons, making it easier to make decisions about salaries or potential savings.

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 benefits in kind, let alone not paying any tax and National Insurance 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!

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