Payrolling Benefits
What is a Benefit in Kind?
Benefits in kind (BIKs) are benefits that employees or directors receive from their employer which aren’t included in their salary or wages. BIKs are popular elements of many people’s salary packages and can be used by an employer to structure an effective and tax-efficient salary package.
Some BIKs aren’t taxed, but most are. As well as the impact on an employee’s personal tax, national insurance contributions are payable by companies, such that the tax treatment is broadly similar to that when paying a salary (although employer pension contributions are not due on BIKs).
What is Payrolling Benefits?
We are encouraging employers to take advantage of using payroll facilities for the purpose of reporting expenses and benefits. Rather than filing an annual P11D, an employer can report and deduct tax on the value of benefits provided to an employee each pay period though PAYE. This means doing away with the end of year P11D process, as taxes are submitted in real time.
HMRC will issue an employee with a new tax code to automatically account for the benefit provided and charge the correct amount of tax, in real time.
An employer will still need to complete and submit a P11D(b) form and pay Class 1A National Insurance on the value of the benefit provided to employees.
Employer Duties
Once an employer has registered to payroll benefits, they must give employees written notice explaining which benefits will be payrolled, the cash equivalent of the benefits, and details of benefits that will not be payrolled. Details on communicating with existing and new employees are set out on gov.uk.
Working out the taxable amount of a benefit in kind
The taxable amount of the benefit is the same as its cash value. This is then divided by the number of paydays the employee has in each pay period, so that tax is applied appropriately.
What if the value of the benefit changes?
It’s fairly common for benefits such as gym memberships and car costs to change during the year. If this happens, it’s simple to process the change. You must however ensure to keep us updated with changes when you communicate with us in the normal course of operating payroll. Examples of changes to the value of the benefit provided to the employee include:
- a change in price of the benefit, such as an increase in insurance premium
- a change in the number of days worked by the employee, including if an employee leaves
We recommend you discuss any benefit you plan to offer your company’s directors and employees with one of our expert accountants. As you can see, the rules around benefits in kind are complex and each example needs to be looked at based on its individual circumstances to see if any tax is payable by the employee and/or your company.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.