1. What can be classed as a Benefit in Kind?
HMRC have a broad definition of a Benefit in Kind which is “anything of monetary value provided by an employer to employees that is not 'wholly, exclusively, and necessary' for them to perform their contractual duties.”
In this business guide we will focus on items that have to be declared on the P11D form which is sent to HMRC each year. Typical items that should be declared include discounted services or goods; vouchers (including childcare vouchers); living accommodation; travel allowances; company cars, vans, bikes; discounted loans; private insurance (including health insurance); training fees and devices e.g. mobile phones that are available for personal use.
These benefits are sometimes referred to as notional pay, fringe benefits or perks.
2. Who is responsible for declaring a Benefit in Kind?
The responsibility for paying any tax due on a Benefit in Kind rests with the employee or beneficiary, however the responsibility for preparing and distributing the P11D which confirms the benefits and their value lies with the employer.
Employers will usually complete a P11D form at the end of each tax year to confirm the benefits in kind each employee has received.
It would be prudent for employees who have received a benefit to check that their employer prepares a P11D form at the end of the tax year in which the benefit was received.
3. How much tax will I have to pay?
Tax is charged on the value of the benefit. The value is deemed to be either the value to the employee receiving it or the cost to the employer if this is higher.
The taxable amount is removed from your tax-free threshold and will result in a change to your tax code. The actual amount of tax paid will depend on the highest rate of tax you pay, and it should be borne in mind that the tax-free threshold reduction could push some of your earnings into a higher band of tax, so some or all of the benefit value could effectively be taxed at the higher rate.
4. Is it worth accepting Benefits in Kind?
You should bear in mind that you are only paying a percentage of the value of the benefit in tax, i.e. 20%, 40% or 45% for the highest earners.
However, individual circumstances vary and the value of the benefit to you may be less than the calculated value. It may be worthwhile calculating the tax that would be payable on a benefit and comparing that to the real value to you.
5. Will I automatically receive a P11D?
If your employer has created a P11D in the previous tax year, HMRC will automatically send a new one to be completed. Employers will send employees a copy of the P11D they have submitted, which can be used in the submission of a tax return.
If a P11D has not been sent previously, you should remind your employer that they will need to create one for your new benefits in kind.
6. What if my benefits change during the tax year?
Sometimes new benefits may be awarded during a tax year or changes can be made to existing benefits. For example, if a company car is changed or medical cover is added to a gym membership.
When a benefit changes or a new benefit is received, this should be notified to HMRC either directly or through your employer as soon as possible.
7. When do my Benefits in Kind have to be reported?
Benefits in Kind must be reported to HMRC by your employer by 6th July for the previous tax year. This is usually submitted online to HMRC, often through the P11D form completed by your employer. As stated earlier, employers should provide a copy of the P11D to employees.
Penalties may be charged to the employer by HMRC for late submission.
Employees should report the taxable benefit from the P11D form on their tax return if they are asked to complete one.
8. Is there an implication for employers?
Benefits in Kind attract class 1A National Insurance (NI) contributions payable by the employer. These must also be notified to HMRC by the 6th July, and payment must reach HMRC by the 22nd July (or 19th July if paying by cheque).
Again, penalties may be charged to the employer for late payment.
9. Useful links
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