So this is one of those terms you may hear a lot but not know what it actually entails. Well to put it simply, ‘Benefits in Kind’ are ‘perks’ of your job with things such as a company car, private medical healthcare etc…yep that’s it, I hope you enjoyed today’s blog and I’ll see you on the next one…joking! But in a nutshell that is all benefits in kind are – however there’s a little more to it than that and today’s blog is all about how these benefits in kind work. So if these applies to you then it’s good stuff to know!
Firstly, let’s list the common benefits in kind so you can get a solid idea of the types of things we’re referring to.
Common Benefits in Kind
- Rent-free accommodation or rent which is below market value
- Relocation expenses if having to move for your job
- If your employer pays your council tax, water and/or sewerage rates
- Hotels and temporary accommodation
- Cars and vans used for work and ‘personal use’ – HMRC consider driving to and from work ‘personal use’ by the way…yep, I know right! So this usually applies to all company cars/vans
- Fuel for personal use
- Childcare expenses
- Work and safety clothing provided for work
- Free holidays
- Job related benefits – meaning benefits that you get as a direct link to the company you work for e.g. if you work for an airline and get cheaper flight seats etc
- Loans from an employer
- Meals at work
- Private Medical Healthcare and Insurance
- Overnight stay expenses
- Job-related training courses
- Travel expenses e.g. season bus/train tickets
As with most things in today’s society, you will have to pay tax on these perks – yep, sorry to break the news!
Firstly, when considering how much tax you’ll pay on a benefit in kind you need to know how the HMRC calculate the value of a benefit. They simply calculate the cash equivalent value of that benefit and you will pay tax on that amount. So if you were given a company car worth £20,000 then this would be the amount you’ll be taxed on.
So how do you pay the tax? Well quite commonly, it will come directly out of your PAYE so you don’t need to worry about it. This works by your workplace simply putting you on a different tax code and they will file a ‘P11D’ to the HMRC which describes any benefits in kind you have received for that year. The HMRC then calculate and deduct the tax owed from your PAYE.
Alternatively if you complete a self-assessment tax return, then you must complete the full cash-value of all benefits in kind on the Employment page of your tax return for that relevant year and this will be added to the amount you need to pay in your self-assessment.
If there’s been any benefits in kind you have received but not paid tax on then you will simply get a P800 form in the post informing you of your under/overpayment in tax.
So with that all said, let’s end this blog on a slightly happier note! There are actually certain benefits in kind which you don’t need to pay tax on and below is a list of them all.
Tax-Free Benefits in Kind
- All benefits in kind if you earn under the personal allowance of £11,000 (2016-2017)
- Employer-paid pension contributions
- If food is provided for all employees then cheap or free canteen meals
- In-house sports facilities
- Redundant employees receiving Counselling Services
- Some childcare arrangements
- Subsidies to public bus services, to get employees to and from work
- Safety equipment provided for employees riding to and from work on bicycles
- Workplace parking for bicycles and motorcycles
- Up to a maximum of £8,000 removal costs if you have to relocate for your job
- Personal gifts given for reasons unconnected with the job e.g. retirement or wedding gifts (other than cash)
- Gifts (other than cash) that you receive from someone other than your employer but is still related to work – e.g. if a client of your work gives you seats at sports or cultural events – however the gift cannot be worth more than £250 in a single year
- Equipment and facilities provided for you to carry out your job if you are disabled.
It’s also worth noting that a benefit in kind is considered ‘trivial’ and is tax free if it’s:
- Less than £50 in value
- Not cash or a cash voucher
- Not a bonus/reward for doing well in your job
- Outside of your employment contract
- Not considered a ‘salary sacrifice’