What is a Benefit in Kind?
A Benefit in Kind is considered to be anything of monetary value that an employer provides their employee that is not necessary for them to undertake their job responsibilities. They are often provided to an employee in addition to their annual salary and are seen as perks of the job.
What qualifies as a Benefit in Kind?
There is not a definitive list of benefits that an employer can offer, but the most common benefit in kind includes company cars, private medical insurance, and non-business travel expenses, all of which are taxable.
There are some types of benefits in kind which are tax-free, including free meals and gym facilities, which are provided in-house, but more often than none, most benefits are taxable.
How is a Benefit in Kind taxed?
A Benefit in Kind is taxed as part of an employee’s income. The amount of tax an employee will pay on the benefit in kind is based on the value of the benefit and their overall income tax bracket. The tax they owe for a benefit in kind is deducted from their PAYE through an amended tax code.
How does a Benefit in Kind impact employee income tax thresholds?
The BIK value is added to an employee’s overall income and therefore can take an employee into the next income tax threshold.
For example, in Scotland, if an employee is paid £43,000 per year, they will pay tax at a rate of 21% in the intermediate rate band. If they also receive medical insurance from their company, which is added to their income and increases it to over £43,662, the employee will move into the higher rate tax band and will pay 42% on anything they earn between £43,663 to £125,140.
Do employers have to pay tax on Benefits in Kind?
Employers pay national insurance on benefits in kind, just like they do on salaries, at a rate of 13.8%. The Employers national insurance is paid as a lump sum following the submission of the P11D.
How is the value of a Benefit in Kind determined?
The way in which the value of a benefit in kind is calculated is based on the benefit itself.
For example, for a company car, tax must be paid if you and your family use it privately, including journeys to and from work. The amount of tax payable is determined based on the car’s list price and CO2 emissions. The current rate of tax on an electric car, provided as part of an employee’s package and used for personal use, is 2% as of 2022/2023.
If an employer offers private medical insurance, the value is determined by the cost of the insurance.
It is an employer’s responsibility to determine the value of the benefit they provide and report this to HMRC. Calculating the value of a benefit in kind can be complicated. However, it is crucial that employers get this correct to ensure both the employee and employer are paying the right amount of tax.
Our payroll experts at EQ Accountants can determine the value of the Benefit in Kind and will report it on a P11D to HMRC. HMRC will then determine the rate at which employees will pay tax on the benefits provided.
What are the deadlines for Benefit in Kind?
Benefit in Kind runs with the tax year, and employers must submit a P11D, which includes a report of expenses and benefits, at the end of the tax year by 6th July. Employers are then required to pay Employers National Insurance by the 19th of July as a lump sum.
When the P11D is submitted, HMRC then calculates the tax due and adjusts the employee’s tax codes accordingly to take account of the benefits provided.
If you are considering providing your employee with a benefit in kind, we recommend contacting the payroll experts at EQ Accountants to understand the tax advantages and implications and to ensure that the value of the benefit is calculated correctly.