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Contents

  1. 1. What are benefits in kind?
  2. 2. What is a taxable benefit?
  3. 3. Tax-free benefits in kind
  4. 4. How do you report a benefit in kind?
  5. 5. Keeping track of benefits in kind

What are benefits in kind?

September 29, 2022
One of the best ways to reward your employees for their hard work is to offer benefits in kind (otherwise known as fringe benefits, perks or simply BIK).HM Revenue and Customs (HMRC) treats each benefit differently: some are taxed, while others aren’t. This is something to keep in mind before you start crafting your employee benefits packages. Sure, you want to be a generous employer — but, if you create a package with a bunch of taxable benefits, then your employees might end up with an unexpected bill.It can be hard to decide which benefits to offer your employees. That’s why it pays to make a careful plan beforehand. Let’s dive into what a benefit in kind is, what’s deemed a taxable benefit in kind and the benefits dubbed tax-free.

What are benefits in kind?

Benefits in kind are non-cash benefits given to limited company employees or directors that aren’t included in salaries or wages.HMRC defines benefits in kind as anything of monetary value that you provide to your employees, which isn’t "wholly, exclusively and necessary" for them to perform their contractual duties.Say, for example, you give a van to a delivery driver. HMRC would consider the vehicle to be essential to their work, meaning it wouldn’t classify as a benefit in kind.In other words, benefits in kind can make up an employee’s rewards package, as long as these benefits are solely for private use and aren’t deemed beneficial for work purposes. It’s also worth noting that money is not included as a benefit in kind.Company benefits go a long way in attracting talent and motivating your existing employees, with common benefits in kind including:
    Workplace pensionPrivate medical insuranceDeath-in-service benefitChildcare vouchersCompany careCycle-to-work schemesGym membershipsEmployee counselling services
Benefits in kind can be used personally by an employee, but the company pays for access.

What is a taxable benefit?

Benefits in kind may be taxed to prevent employers from replacing their employees’ salaries with another benefit. The following are just some of the taxable BIKs you could offer your employees:
    Private health insuranceCompany cars and fuel for personal usePrivate medical insuranceSelf Assessment fees (paid by the company)Home phones with personal useNon-business travel expensesNon-business entertainment expenses

How much tax do I pay on BIKs?

You may also need to pay Class 1A Employer National Insurance contributions (NICs) of 13.8% of the taxable value of the benefit.

HMRC takes into account each type of benefit, along with a range of circumstances, before deciding whether you have to pay tax on it.This shouldn’t deter you from offering your employees taxable benefits, however — you can offset these allowable expenses against your Corporation Tax bill.

Tax-free benefits in kind

Some benefits in kind don’t incur any tax, meaning neither you, nor your employee, will have to pay tax on these rewards. Tax-deductible expenses are a win-win: the employee gets the benefit, and you can reduce your profits for Corporation Tax.
HMRC has a long list of expenses and benefits, which you can refer to here. Here are a few common examples, where tax may not have to be paid:

    Accommodation, supplies and services on your business premisesFree or subsidised meals provided in a staff canteen to all employees, where the value of the meal is considered ‘reasonable’Business expenses paid for on a company credit card by an employee, as long as it isn’t a personal purchase, or tax specific rules apply (e.g. parking space tickets, fuel for a company car)Incidental overnight expensesWork and safety clothes, such as helmets and safety glassesMobile phone contracts between your company and the service providerWork-related trainingChildcare vouchersCounsellingLong-service awardsChristmas partiesCycling safety equipment

How do you report a benefit in kind?

Benefits in kind are reported on a P11D form, a form used to submit your declaration of employee expenses and benefits to HMRC. You must fill out a P11D for every employee that’s received benefits in kind.

The P11D form needs to be submitted by 6th July following the end of the relevant tax year. A company will likewise need to file a P11D(b) form, as a summary of each individual P11D form they’ve completed. This will help HMRC calculate how much National Insurance you’ll need to pay on the total expenses and benefits provided.

Keeping track of benefits in kind

HMRC will need to the see the benefits in kind you’ve provided for your employees, making it crucial to have a good bookkeeping practice in place.

For any claims that are made, companies must have a system in place for validating employee expense claims, making it crucial to hang onto your receipts and to complete all relevant expense forms.That being said, you won’t have to record routine employee expenses as a benefit in kind, such as mobile phone bills — these can be recorded separately. ‘Trivial’ benefits — expenses worth less than £50 in value, with no relation to employee performance — don’t need to be included in your records, either.
To simplify your record keeping, why not try Ember? Our automated expense management makes it easy to keep track of your spending, with our capture-and-categorising tech meaning you can simply snap your receipts before binning them.

Ellie Perkins
Ellie PerkinsFreelance Writer

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