If you’re employing people in your business you pay them salaries or wages – but some may also receive ‘benefits in kind’ (BIKs).
BIKs, often called ‘perks’, are part of the package received by your employee in addition to their financial reward. The most obvious BIK is for people in sales who receive a car as part of the package because it helps them do their job.
Some BIKs are taxable while others are not and it can be difficult to work out how to treat them. As well as impacting on employees’ personal tax, companies may also need to pay National Insurance Contributions on some BIKs.
It can be a little bit confusing, so here’s our guide on benefits in kind.
What are benefits in kind?
A benefit in kind is effectively an asset or service used personally by an employee that the company pays for.
HMRC defines a benefit in kind as something of monetary value that you provide that is not ‘wholly, exclusively, and necessary’ for an employee to perform contractural duties. So, while a salesperson needs a car to get them to appointments, they can also drive it for personal use outside work!
There are many complex rules that cover an array of different benefits, but they generally fall into two broad categories: taxable and tax-free. The basic guidelines are set out on HMRC’s website.
While we couldn’t include every type of benefit in kind, here are some typical examples.
Benefits in kind examples
The complex rules around benefits in kind mean you should check HMRC’s website. But here is a summary of the most common BIKs.
- Company cars for personal use
- Fuel for company cars that are for personal use
- Non-business travel expenses
- Assets provided to employees that have significant personal use
- Private medical insurance
For more examples, visit HMRC’s list of taxable benefits in kind.
- Work-related training
- Payments towards extra household costs where employees work at home
- Work and safety clothes
- Incidental overnight expenses
- Expenses of providing a pension
- Goodwill entertainment
HMRC has an extensive list of tax-free benefits on its website.
How to report benefits in kind
Reporting benefits in kind to HMRC is carried out by employers using a P11D form. As a benefit effectively increases salaries or wages, it maybe subject to National Insurance Contributions (NICs).
All P11D forms should be submitted by 6 July following the tax year in which the employee received the benefit. Employers must also provide a copy of the form to an employee so they can check your calculations.
Any tax or NICs that require payment should be deducted through your payroll system. For more details about P11D forms, check out our earlier blog.
Planning benefits in kind
With such complex rules, it is better to look at the implications of benefits in kind and plan ahead so neither your business or employee is landed with unexpected tax or NIC bills.
Planning also gives you and your employees the chance to benefit from a more tax-efficient package.
Would like help understanding BIKs and want help planning tax efficient packages for your employees? Speak to a member of our team today using our contact form.