Benefits in kind: explained
What’s a benefit in kind (BiK)? Think company cars and private health insurance – they’re valuable, non-cash perks employers give to their staff on top of a salary.
Other examples of BiKs are non-business travel and entertainment expenses. In short, it’s stuff that benefits an employee personally, but the business pays for.
Benefits in kind are also sometimes called ‘fringe benefits’, and ‘employee perks’.
Paying income tax on a benefit in kind
Most BiKs are taxable (this is to prevent people replacing their salary with a benefit in a bid to dodge the tax payment – cheeky!)
An employer can deduct BiK tax from an employee’s pay via Pay As You Earn (PAYE). This is sometimes called ‘payrolling’ benefits.
The amount the employee pays will depend on the type of benefit and its value.
Here’s an example of some of the main types of benefits in kind that will incur tax:
- Private health insurance
- A company car
- Self-Assessment fees paid by the company
- Home phones with personal use
- Non-business travel and entertainment expenses
Non-taxable BiKs may include:
- Canteen staff meals for all employees (at a ‘reasonable’ cost)
- Hot and cold drinks in the workplace
- Childcare vouchers
- Mobile phones, when contracts are set up by the company
- Business expenses paid for on a company credit card by an employee, where specific tax rules don’t apply (e.g. fuel for a company car)
- Costs of certain travel, such as a work bus service, or workplace parking
- Work and safety clothes
- Work-related training
Christmas parties can also be tax-free depending on the spend per employee – check out our payroll at Christmas guide for more on that.
Paying National Insurance on a benefit in kind
To make things more confusing, BiKs affect National Insurance (NI) contributions.
- Anything that’s paid in cash is treated as earnings, and the employee will need to pay NI on it, e.g. gift vouchers.
- For everything else (i.e. non-cash benefits) the employer will need to pay the NI, e.g. a company car or private health cover. A company has to pay NICs at a rate of 13.8% of the determined value of the benefit in kind.
Of course, employers can provide gifts to their employees which don’t incur any tax deductions. They just need to meet certain criteria: find out more about trivial benefits here.
Rather handily, HMRC have an A-Z of expenses and benefits you can reference to find out what tax and NI is due for each one.
How do you report benefits in kind?
As BiK effectively increases employees’ salary, any benefits that are not payrolled are reported in a P11D form. (If benefits are payrolled, then they don’t have to go on the form.)
P11Ds don’t depend on your company year, they depend on the tax year. So all P11D forms, including your BiK information, need to be submitted by 6th July for the previous tax year.
At the same time, you’ll need to file a P11D(b) form which is a summary of Class 1A NI due, so how much NI will need to be paid on all the expenses and benefits you’ve provided.
Thinking of introducing benefits in kind to your business?
Make sure you know the legislation inside and out before embarking on your BiK journey. As there are many complex rules surrounding BiK, we’d advise getting some advice from payroll experts to make sure you don’t fall foul to non-compliance. But that shouldn’t put you off providing some fantastic benefits to your employees.
Check out Moorepay’s Employee Benefits for more information. Our comprehensive benefits package will ensure your employees have a diverse range of perks suitable for everyone. And what’s more, you can easily connect our employee benefits platform with your payroll software, which means you don’t have to worry about salary sacrifice – our software takes care of the calculations for you.