What are Benefits in Kind and How are They Taxed?

Benefits in Kind (BiKs) are non-cash benefits provided by employers to employees. These perks are often a cost-effective way to retain talent and encourage skilled team members to remain with the company. 

BiKs come in various forms and are provided based on cost-effectiveness and staff preferences. Examples include: 

●     Private medical insurance – an option that allows employees to access first-rate medical treatment and bypass NHS queues

●     Company car – a way to eliminate most of your staff’s motoring expenses and provide them with the means to travel to work or on business

●     Gym membership – a perk that is becoming more common recently by promoting staff wellness and long-term health

●     Free meals – a strategy larger businesses use to reduce staff spending on costly lunchtime snacks and meals from third-party businesses

●     Discounted travel – money off train, bus, and flight tickets

●     Flexible working – the ability for employees to pick and choose their hours

●     Paid sick leave – an additional benefit going beyond statutory pay

●     In-office mental health support – chaplaincy or counselling services provided in the workplace by independent professionals

●     Employee discount scheme – money off meals at local restaurants or cheaper cinema trips 

Understanding BiK Taxation 

Unfortunately, the UK subjects most BiKs to income tax. Therefore, the value workers receive from these benefits is lower than otherwise. 

How much taxation applies depends on the benefit the employee gets. The tax on some is more onerous than others but there are exemptions. Some benefits are tax-free and don’t require employers to take money through PAYE. 

Employees don’t have to pay National Insurance (NI) on BiKs, but employers do. Therefore, you should factor these costs into your business finances. 

Taxation of Different BiKs 

Taxation on BiKs varies depending on the perks employees receive, below we look at taxation rules for some of the most popular BiKs:

Company cars 

The government bases company car BiK tax on various factors. The amount employees pay in tax goes down if: 

●     They only use the car part-time (say at the weekends)

●     It emits low CO2

●     They already paid some of the vehicle’s cost

●     The list price is low 

Cars with CO2 emissions from 1 to 50g/km have a taxable value based on the “zero emissions mileage figure.” This number varies from year to year, but it represents the minimum payment for most vehicles. 

Fuel Benefit Charge 

The fuel benefit charge is an additional tax on private fuel use of company cars. Employees pay this if they use company vehicles for leisure purposes outside of work. 

Other BiKs 

Taxes on other BiKs vary considerably depending on the benefit type. The government applies different rules to keep things fair and encourage certain perks over others. 

For medical insurance premiums, employees pay the cost through the PAYE system. The price of the premium adds to their taxable gross income. 

Free health benefits, such as medical insurance abroad and annual checkups are sometimes available to employees. However, most healthcare incentives are taxable. 

Employees must also pay tax on low or zero-interest loans from you if they are worth more than £10,000. More tax also applies when you lend to their relatives. 

Living accommodation provided by you to employees is also subject to taxation. How much workers must pay depends on the value of the housing above £75,000. 

HMRC provides detailed information on how much you should deduct for medical, financial, and accommodation-related perks. These take you through a step-by-step process, showing you what employees owe. 

Employee Responsibilities 

As an employer, it is not 100% your responsibility to report BiKs to HMRC. Employees must complete a P11D form containing details of their perks and benefits to calculate the tax rate. 

You can complete the P11D form for them and get them to sign off to make life easier, keeping the details for at least two years after the relevant tax year. 

When preparing to submit the P11D, it is a good idea to advise employees to check their P11D and ensure the reported value is accurate. Mistakes could lead to over- or under-payment of taxes. 

Finally, employees can appeal BiK valuations if they disagree. As such, you need to be careful with the figures you use. Some employees will appeal to a tribunal within one month of getting their mandatory reconsideration decision. If they appeal after that, they must explain why they didn’t do so earlier. The government includes the benefits that apply online.  

Getting Confused with Benefits in Kind and Taxation? We Can Help! 

Benefits in kind and their related tax calculations can be difficult to understand, so it’s best to consult a qualified accountant if you have any queries. 

Linggard and Thomas are expert chartered accountants that can empower your business to grow. We can help guide you through tax strategy including benefits in kind taxation and help you reduce your bills. 

Get in touch today to see how we can help your business succeed.

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