Benefits in Kind

Benefits in kind are benefits that employees or directors receive from their company which are not included in their salary or wages.

Not all benefits in kind are treated in the same way by the tax system. Some are not taxed, but others are, and it can be hard to figure out where you stand. As well as the impact on an employee’s personal tax, National Insurance Contributions are payable by companies on the benefits in kind provided in a tax year, at 13.8% of their determined value. That can make it all a little confusing how to know which ones apply to you and which ones do not?

This article will help you work out what counts as a benefit in kind, which ones apply to you and how to report them to HMRC.

What is a benefit in kind?

Benefits in kind can be thought of as assets or services used personally by an employee but where the company pays for the access to these benefits. When you receive anything from your company which benefits you personally, and is not “wholly, exclusively and necessary” for the purposes of your business, it is likely you’ve received a benefit in kind.

There is a wide range of benefits in kind – from company cars to private healthcare – that may need reporting to the HMRC.

Examples of a benefit in kind

Here is a short list of some of the main types of benefits in kind that will incur tax:

  • A company car
  • Private health insurance
  • Assets provided to an employee that have significant personal use
  • Self-Assessment fees paid by the company
  • Home phones with personal use
  • Non-business travel expenses
  • Non-business entertainment expenses

Some benefits do not incur any tax. However, there are complex rules around each type of benefit and a range of circumstances which HMRC will take into account before deciding if you have tax to pay or not. We recommend you speak to one of our expert accountants about your individual circumstances to find out if tax is payable or not.

A few examples where circumstances may mean no tax is paid include:

  • Meals provided to all employees in a staff canteen – though the value of the meal must be ‘reasonable’
  • Certain costs of travel such as a work bus service
  • Business expenses paid for on a company credit card by an employee. As long as your employee isn’t making a personal purchase, or where specific tax rules apply (e.g. fuel for a company car, parking spaces or incidental overnight expenses)
  • Work and safety clothes, such as overalls and hard helmets
  • Mobile phone contracts between your company and the service provider
  • Work-related training

How do you report a benefit in kind?

Benefits in kind are reported on a P11D form; as the benefit effectively increases your salary, there may be National Insurance contributions to be paid on them. It is important to note that these contributions will be paid by the company, rather than the individual.

P11D filings do not depend on your company year – instead, all forms need to be submitted by 6th July following the end of the relevant tax year.

If a company offers its employees any of the taxable benefit in kind examples listed above, they will need to be included on your P11D.

A company will also need to file a P11D(b) form, which summarises the individual P11D forms they have completed for their employees and how much National Insurance will need to be paid on all the expenses and benefits they have provided. As mentioned previously, a company has to pay NICs at a rate of 13.8% of the determined value of the benefit in kind.

Additionally, it is a statutory requirement for companies to operate a system for validating employee expense claims. It is therefore important to keep all receipts and complete expense forms.

If you are confused by the P11D and P11D(b) forms, take a look at our article ‘What is a P11D?’.

Finally

We recommend you discuss any benefit you plan to offer your company’s directors and employees with one of our expert accountants. As you can see, the rules around benefits in kind are complex and each example needs to be looked at based on its individual circumstances to see if any tax is payable by the employee and/or your company.