What is a benefit in kind?
Posted on 2nd June 2022
Benefits in kind (BIK) are any benefits an employee or director receives from their company which are paid over and above their salary or wages. BIK are also known as perks, fringe benefits or non-cash benefits.
BIKs are often used to reward staff for their loyalty and hard work, or you can use perks and benefits to attract the best workforce to your company.
Some BIK are subject to personal income tax payable to HMRC by employees and they can also impact a company’s National Insurance (NI) contributions. However, there are other BIK that are not subjected to any tax. Working out the amount of tax and NI due on the determined value of each benefit can be a little confusing but it is important you consider this before you leap head-first into providing the benefits!
Benefits in kind
The most common benefits offered by companies that are usually subjected to tax include:
Free or subsidised fuel for private use.
Private Medical Insurance.
Non-business travel or entertainment expenses.
Home phones where there is personal use.
A gift voucher with a cash value.
Low-interest or interest-free loans from your employer of less than £10,000.
Living accommodation provided by your employer, if worth more than £75,000.
Company perks or benefits that are not usually subjected to tax include:
Company van, used only for work purposes.
Work related training.
Business related travel.
Coronavirus antigen tests.
Meals provided in a staff canteen.
Hot drinks at work.
Business related expenses paid for using a company credit card.
Work clothing such as safety helmets, boots, or overalls.
Mobile phone with a contract between the employer and the service provider.
Annual party if it costs less than £150 per person and is open to all employees.
What are the common BIK, and how are they taxed?
Below are some of the most common benefits and how/if they are taxed.
Company car and fuel
Tax is due if you or your family use a company car for private use, this includes commuting to and from work. The tax is calculated on the list price of the car plus any accessories, CO2 emissions, fuel type and the vehicle’s date of registration.
You can reduce the amount of tax paid if you pay a contribution towards the cost of the car, if it has low CO2 emissions, or if you only use the vehicle part-time.
If you are in receipt of fuel from your company that is also used for private journeys, you will have to pay tax on this. If the fuel is for work journeys only, there is no tax due.
You can use HMRC’s company car and fuel benefit calculator to work out the tax due.
If you are provided with a company van that is used mainly for work purposes, you will only be expected to pay tax on any private use, including your commute to and from work. However, if the van is exclusively for work use or a pool van, there is no tax to pay.
If you drive an electric van, there is no taxable fuel benefit.
Click here to read more about expenses and benefits on company vans and fuel.
Private Medical Insurance
If your company provides you with private medical or dental cover, tax is usually due on the cost of the insurance premiums. Click here learn more.
Tax-free health benefits from your employer include medical insurance when working abroad and annual check-ups.
How to report benefits in kind
To report a BIK, your company will need to complete and submit a P11D form per employee to HMRC or they can choose to pay via the Pay as You Earn (PAYE) scheme. .
All taxable benefits have a value, the government sets out laws that should help you to calculate the perceived value of each benefit. Click here for more information.
If you are planning to offer your employees any benefits, we recommend that you speak to your accountant so that they advise you on the latest BIK rules.
If you’re in the market for a new accountancy firm with extensive knowledge and experience in calculating any tax of NI due on company perks and benefits, contact us to see how we can help.
Nicola J Sorrell - Effective Accounting
Founder | Xero Champion | IR35 Expert
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