What is a benefit-in-kind?

As a limited company director or employee, your remuneration or reward for your services may not consist of just a salary or a wage but also of non-cash ‘benefits’ of monetary value.

There are several types of common benefits, often called ‘perks’ or ‘fringe benefits’ provided by employers. Because such benefits have a value or ‘moneysworth’, most of them are taxable in your hands. Here are some examples:

Use of a company car
Club membership fees
Private medical insurance
Employer-provided accommodation
Certain interest-free loans

HMRC broadly describe benefits as being anything of monetary value provided by an employer to a director or employee that is not ‘wholly, exclusively and necessary’ for them to perform the duties of their employment.

However, some benefits can be tax-free such as:

childcare support or vouchers
on-site car parking
work-related training.

Most taxable benefits today are handled through an employer’s payroll and tax is accounted for through PAYE or by an adjustment of the director or employee’s tax code. The employer also has to account for employer’s National Insurance Contributions on the taxable benefits.

It’s an employer’s responsibility to make a return of taxable benefits which have not been payrolled to HMRC, each year and to provide a copy of that return (form P11D) to the employee.

The taxable value of benefits is calculated depending upon the type of benefit involved. Some of the calculations such as the provision of accommodation and beneficial loans can be quite complex. Advice should be sought if this type of benefit is being considered as part of an employee or director’s reward package.

Benefit-In-Kind FAQs

Here are some of our most frequently asked questions about benefits-in-kind.

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Do I have to pay tax on the free meals I take in my employer’s canteen?

No, providing the canteen is open to all staff.

What rate of income tax do I pay on my benefits?

Taxable benefits are earnings and are taxed at the same rates as your normal wages or salary.

If my employer provides me with a company credit card do I have to pay tax on anything I buy with it?

You will pay tax on any goods or services paid for using the card which are not ‘wholly, exclusively and necessarily incurred in the performance of the duties of your employment’. So, if you buy personal grocery items, their value is taxable but purchases of stationery for the office would not be.

I understand that I must pay tax on the private use of my company car, but do I have to pay National Insurance Contributions as well?

No. But your employer must pay National Insurance Contributions on any taxable benefits provided.

My employer contributes to a pension scheme on my behalf. Are the payments made taxable on me?

No. Pension contributions are non-taxable but there are rules around how much you can have paid in each year so check this out if your employer will be making large contributions on your behalf.

I am a director of my own limited company. Can my company pay my golf club subs as being a member gives me the opportunity to generate business for the company?

Yes, your company can pay the subscription, but it is likely to be a taxable benefit as the payment is not wholly, exclusively and necessarily for the business. The main purpose is for you to play golf. There was a tax case in the 1960s which set a precedent for this type of expenditure.

My employer is paying for the installation of a home ChargePoint for the electric company car which is being provided as part of my remuneration package. Will the installation cost be a taxable benefit?

No. There is a specific exclusion from a tax charge in these circumstances but if your employer provides a home ChargePoint for your personal car there will be a benefit based on the actual cost of the installation.

I’m considering asking my employer for an interest-free loan of less than £10,000, repayable by monthly instalments, to help me buy a rail season ticket from home to work. Would this be a taxable benefit?

No. The loan is less than £10,000 and would not be caught by the beneficial loan rules. However, the loan repayments you make are not tax deductible and will be collected by your employer from your net pay each month.

My limited company has a car which my partner wants to buy. They are an employee of the company earning around £20k pa. If they buy the car will there be any benefit in kind tax charge to them?

This will depend upon the sum paid by your partner. If they buys it at genuine market value then there will be no benefit. However, if they pay less than what it’s worth they will be charged a benefit in kind based on the difference between the market value and what they pay for it. The company will also have to pay National Insurance Contributions on the difference.

I’m a sole trader with my own business. Am I caught under the benefit-in-kind rules?

No. They only apply to directors and employees. Your business accounts and tax return should reflect anything which you took out of the business for private or personal use.

Although benefits-in-kind are widespread in the employment world, some of the tax implications are less well-known. If you are an employee considering a remuneration package containing benefits, or you are an employer putting together such a package for a prospective employee we always recommend that you seek advice on the potential tax consequences.

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