Benefits in Kind: What You Need to Know
Navigating the labyrinth of taxes and benefits can be challenging, particularly when it comes to benefits in kind (BIKs). Here, I aim to clarify these complexities, helping you understand the tax implications for both employers and employees. By the end of this guide, you’ll have a clearer picture of how to manage BIKs, ensuring compliance and making informed decisions.
What are Benefits in Kind?
Benefits in kind (BIKs) are non-monetary compensations provided by employers to their employees. These can include company cars, health insurance, or childcare, and they are considered part of an employee’s taxable income. The value of a BIK is typically based on the cost incurred by the employer to provide the benefit.
Understanding the tax implications of BIKs is crucial for both employers and employees. Employers must pay National Insurance Contributions (NICs) on the value of the BIKs, and employees are subject to income tax on these benefits.
Tax Implications for Employers
Employers must navigate a complex landscape when providing benefits to employees. Here are the key points to consider:
National Insurance Contributions (NICs): Employers are required to pay Class 1A NICs at a rate of 13.8% on the value of BIKs provided. For every £100 of BIKs, employers must pay £13.80 in NICs.
Annual Reporting: Employers must report BIKs for the tax year by 6th July following the end of the tax year. This involves submitting a P11D form for each employee via their Government Gateway/HMRC account. Employers must also provide employees with a copy of this information by this date.
Payment of NICs: The Class 1A NICs must be paid by 22nd July each year.
Recording and Reporting Tips for Employers:
Maintain Accurate Records: Keep detailed records of all benefits provided. This includes the type of benefit, the value, and the date it was provided. Accurate records simplify the reporting process and ensure compliance.
Use Payroll Software: Consider using payroll software that supports “payrolling” of benefits. This allows BIKs to be reported throughout the year, rather than annually, helping to manage the financial impact more smoothly.
Consult a Professional: If you’re unsure about the valuation or reporting of certain benefits, consulting a tax professional can save time and avoid potential errors.
Tax Implications for Employees
For employees, the tax implications of BIKs can affect their monthly pay. Here’s what you need to know:
Income Tax: Employees are liable for income tax on the value of BIKs received. The tax is usually adjusted through a change in their tax code after the employer has submitted the BIK information.
Tax Code Changes: After an employer reports BIKs, typically by July, employees may see a tax code adjustment. This change reflects the tax due on the previous year’s BIKs, potentially resulting in higher monthly tax deductions and lower take-home pay.
Tips for Employees:
Monitor Your Tax Code: After your employer reports BIKs, check your tax code for any changes. This will help you understand how your take-home pay might be affected.
Keep Records: Maintain records of any benefits you receive. This can help if you need to verify the details with your employer or HMRC.
Consult Your Employer: If you have any questions about your BIKs, don’t hesitate to ask your employer for clarification.
Common Benefits in Kind
Several benefits in kind are common in the workplace, each with its own tax implications. Some benefits, like work-related travel costs, business expenses paid with a company credit card, work attire and equipment, and mobile phone contracts, may be tax-exempt. However, benefits such as company car fuel, parking fees, or incidental overnight expenses may incur taxes.
For precise tax liabilities, consulting with a knowledgeable bookkeeper or accountant is advisable. They can provide tailored advice based on specific circumstances.
Reporting and Compliance
Employers must report any BIKs for the tax year by 6th July following the end of the tax year. This is also the deadline to provide employees with a copy of the information. Employers submit the BIKs by logging into their Government Gateway/HMRC account and submitting a P11D form for each employee. Some payroll software now offers “payrolling,” where BIKs are reported throughout the year, reflecting the latest rules.
Employers must then pay the Class 1A NICs by 22nd July. Employees should be aware that their tax codes might change after the employer has reported the BIKs, usually leading to increased monthly tax deductions.
Useful Timescales and Their Impact:
6th July: Deadline for employers to report BIKs and provide information to employees.
22nd July: Deadline for employers to pay Class 1A NICs.
Ongoing: Employees’ tax codes may be adjusted following the reporting of BIKs, impacting their monthly pay.
Understanding and adhering to these timescales is crucial for both compliance and financial planning.
Understanding and managing benefits in kind is essential for both employers and employees. By staying informed about the tax implications and reporting requirements, you can ensure compliance and make better decisions regarding compensation and benefits.
