A Company Guide to Benefits in Kind

Benefits in kind are ‘perks’ that a company provides to employees or directors outside of their regular salaries.

Whilst some benefits in kind are subject to taxation, others aren’t. This can make it tricky to understand how the whole system works and how certain benefits should be treated. Of course, as with anything tax related, it is important to get it right. So with this in mind, let’s take a look at how benefits in kind work, how they should be reported and what is officially classed as a benefit in kind.

What is a benefit in kind?

Anything that is used personally by an employee or director but provided by the company can be considered a benefit in kind. If something benefits an employee or director personally, i.e. it is not absolutely necessary for the purposes of the business, then it will usually be classed as a benefit in kind.

Benefits in kind are taxable. This is to prevent companies replacing employee or director salaries with other benefits.

What are examples of benefits in kind?

The most popular benefits in kind are as follows:

  • Private health insurance
  • Company vehicle
  • Landline telephones with personal use
  • Non-business related travelling expenses
  • Non-business related entertainment expenses
  • Self-Assessment fees covered by the company
  • Any asset with considerable personal use

Are all benefits in kind taxable?

Whilst some benefits in kind are taxable, others are not. The rules are complex and may be subject to individual circumstances. It is therefore vital to take professional advice when working out whether a particular benefit will be subject to taxation.

To assist, here are some common examples of when tax would not be paid on a benefit:

  • Work-related training
  • Safety clothing required for the job
  • Mobile phone contracts in the company name
  • Allowable business expenses
  • Certain travelling costs

How does a company report a benefit in kind?

You will need to report a benefit in kind on a P11D form. Because in theory the benefit increases the employee’s salary, National Insurance contributions may be payable by the company.

The P11D must be submitted by 6th July following the close of the relevant tax year. In addition, companies must also complete and submit a P11D(b) form. This is a summary of all the P11D forms they have completed for each employee or director and shows the amount of National Insurance owing.

As a company you must also run a system for validating any expense claims made by employees.

If you are finding the whole subject of benefits in kind confusing and are concerned about making mistakes, why not give us a call? As certified bookkeepers we can provide the guidance you need to ensure your company does not fall foul of HMRC rules. You are welcome to get in touch for tailored advice; we look forward to hearing from you.

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