If you’re feeling baffled by benefits in kind then trust us when we say you’re not alone. The benefit in kind process confuses many ecommerce business owners and employers – novices and those well experienced alike. That said, it is an important process to get right so that you can ensure that you and your employees remain tax compliant at all times.
In this article, we share our simple guide to benefits in kind, breaking down common examples of benefit in kind and imparting some pearls of wisdom on:
• Tax implications around the various different types of benefit in kind.
• How to go about reporting your benefit in kind activity to HM Revenue & Customs (HMRC).
• How to make managing benefits in kind more efficient.
What is a benefit in kind?
Benefits in kind are assets or services that are given to an employee or a company Director, outside of the standard PAYE system they’re paid through. Although they normally come as part of an ongoing package, benefits in kind can also comprise of a one-off ‘perk’.
A benefit in kind is something that is given to an employee or a Director of a company outside of their standard wages, most typically in non-monetary form. They can be identified as something that isn’t exclusively necessary to an employee’s job but is still bestowed on them at a cost to the employer.
In casual terms, you’ve most probably heard these referred to as ‘work perks’ or ‘staff perks’; in more formal terms, you might have come across them as ‘fringe benefits’.
Common examples of benefits in kind include:
• A company vehicle
• American Express points
• Private health insurance
• Home telephones (including personal use)
• Self Assessment fees being covered by the employer
• Non-business related travel, food and entertainment
• Professional training opportunities
• Loans
• Meals whilst at work
• Childcare
• Pension payments
• Bicycles as part of a Cycle to Work scheme
• On-site gym facilities or off-site gym memberships
• Public transport subsidies
• Safety equipment for use in the workplace
Do you have to pay tax on a benefit in kind?
Yes, you have to pay tax and National Insurance on some forms of benefit in kind but there are some other benefits that are tax-exempt. Those that do incur tax are taxed to prevent employees replacing their salary with a number of benefits.
The tax rules around individual benefits can be complicated and nuanced but from the list of examples we provided above, here is the typical breakdown of taxable versus tax-free:
Examples of taxable benefits in kind:
• A company vehicle
• Private health insurance
• Home telephones (including personal use)
• Non-business related travel, food and entertainment
• Loans
Examples of tax-free benefits in kind:
• Certain types of childcare
• On-site meals
• Pension payments
• On-site gym facilities
• Workplace safety equipment
Do you have to report benefits in kind to HMRC?
Yes, any benefits in kind you offer to your employees need to be reported each year to HMRC. This is done in the form of P11D forms for each employee, which document the benefits they receive. These forms are then compiled into a P11D(b) form to be submitted by the employer, to HMRC, by 6th July following the close of the tax year.
If any of your employees gets a new company car (or a replacement) during the tax year, you’ll also need to submit a P46 form so that HMRC can adjust their tax code accordingly. Failing to do so will lead to an unnecessarily hefty tax bill at the end of the year otherwise.
Advice on how to manage your benefits in kind
Below are two simple things we recommend to simplify and streamline the benefits in kind process:
Stay organised throughout the financial year
If you leave everything until the last minute or when HMRC’s submission deadline starts looming, that’s when you subject yourself to stress and risk unnecessary human error on your accounts.
Recording any benefits in kind for each employee throughout the year will alleviate pressure and allow time for more accuracy in your financial reporting. Not only will this keep you on the right side of HMRC, it will also contribute to more accurate cash flow forecasts and budgeting.
Hire an experienced accountant
We’d always suggest speaking to a reputable accountant before implementing any benefits in kind for your employees. An expert in this field will be best placed to advise on whether or not it’s a viable option for your business and make sure that it won’t negatively impact your cash flow or tax liability.
An accountant will also be able to help ensure that you’re going about the process in the most tax-efficient way possible, as well as keeping you on track with the tax and NI payments you’re required to pay on any benefits in kind as an employer.
Looking for some further benefit in kind guidance for your eCommerce business? Book your free, no-obligation consultation with one of our specialist accountants today.
