A Guide to Benefits in Kind

Benefits in kind are a way to provide employees with additional perks. However, there are tax implications for the employer, so it is important to be clear on how benefits in kind work, and how to report them to HMRC.

What are benefits in kind?

Benefits in kind are non-cash benefits given to employees and directors that do not form part of their wages. Because the benefits have a financial value, some of them are subject to tax and National Insurance.

Examples of benefits in kind include company cars, private healthcare, gym membership, childcare and travel and entertainment expenses. Generally it is anything that is paid for by the business, and that benefits the employee. Not all benefits in kind, however, are subject to tax and National Insurance.

This HMRC expenses and benefits A-Z will help you determine what counts as benefits in kind and is therefore reportable to HMRC.

How to report benefits in kind?

At the end of the tax year, you will usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee that has received expenses or benefits.

If you submit any P11D forms, then you will also need to submit a P11D(b) form form. This form will also be required if you have paid employee expenses or benefits through your payroll, or if HMRC requests one from you.

Your P11D(b) lets HMRC know how much Class 1A National Insurance you need to pay on all the expenses and benefits you have provided.

How to pay tax on benefits in kind?

You can deduct and pay tax on most employee expenses and benefits in kind through your payroll, provided you have registered with HMRC before the start of the tax year, which is 6 April.

If you are paying tax on all employee benefits through your payroll, then you will not need to submit a P11D form for them. However, you will still need to submit a P11D(b) form so you can pay any Class 1A National Insurance you owe.

Because each expense or benefit is calculated differently, you will need to be clear on what you need to report and pay.

For minor expenses or benefits, it might be possible to make a one off payment, known as a PAYE Settlement Agreement.

Need help managing benefits in kind?

You may be charged a penalty if you give inaccurate information in your tax return that results in you not paying enough tax or over-claiming tax reliefs.

If you feel you need help managing the benefits in kind you provide to your employees, or could do with assistance with any other aspects of your company bookkeeping or payroll, we would be delighted to help, so please do get in touch.

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