Benefits in kind – what are they, and how do they affect me?
If you are an employee or a director of a company, you may be receiving benefits in kind. These are items which are given to you by the company but not through your salary. The value of these items is taxable.
What is a benefit in kind?
There are a number of common items which qualify as benefits in kind:
– company cars that are a ‘perk’ rather than needed exclusively for business usage (ie. irrespective of mileage driven)
– loans which are given with low or little interest rates
– private medical insurance arranged by the employer
– mileage allowances, the amount above the standard HMRC rate is classed as a benefit in kind
The important distinction with benefits in kind is that the costs are met by the employer.
Which benefits in kind are tax-free?
There are also a number of items provided by or through your employer that do not fall under the benefits in kind banner:
– childcare voucher schemes
– childcare provided by your employer, such as an in-house creche
– subsidised food, if it available to all employees
– pension contributions
– uniforms or safety clothing
Smaller gifts are not considered as benefits in kind if they are of a non-cash basis or worth less than £50, for example a retirement present.
How will I be taxed on benefits in kind?
There are two ways that benefits in kind can be taxed. Firstly, through your PAYE tax code, which impacts on the amount of personal allowance you receive. Your estimated benefits in kind value is taken off your personal allowance starting figure. This means that you start paying tax on your salary at an earlier point than if you hadn’t received any benefits in kind.
The adjustment amount will be based on the benefits in kind amounts paid to you in previous years, which is provided to you and HMRC on your P11D form. You don’t need to take any additional action if you are taxed through your tax code.
If you submit a Self Assessment tax return, you can enter your benefits in kind value in the Employment section of the form. You should do this even if the tax has been collected through PAYE.
How do I value benefits in kind?
For the most part, the value of the benefits in kind that you receive will be the cash value of the product or service.
The exception to this is company cars. The value of your company car benefit is calculated based on the type of car and its emissions, and it is this calculated value that is used for PAYE or Self Assessment. Diesel cars and those with high emissions will attract a higher benefits in kind value, therefore you will pay more tax on them.
Benefits in kind are taxable and therefore can have a significant impact on your take home pay, especially if you are a higher rate tax payer. It is sensible to consider the implication of any benefits in kind on your tax position before accepting them.