Understanding Benefits in Kind: Rewards Beyond Wages

In addition to regular wages or salaries, there are many other ways to reward and appreciate your employees. For employers to attract and retain top talent, benefits in kind, that is to say remuneration in non-cash form, can be an excellent option.

Benefits in Kind (BIKs) can be offered alongside a basic salary payment, or they can be an integral part of a personalised package tailored to meet the individual needs and preferences of employees.

It is important to note that the majority of BIKs are taxable in the same way as salary. The value of any taxable BIKs will be added to the employee’s taxable income, and they may also be subject to National Insurance contributions.

Understanding Benefits in Kind

Benefits in kind (BIKs) are goods or services that an employer provides to an employee for free or at a reduced cost. the majority of BIKs are taxable, and where taxable, the benefit is added to the employee’s taxable income.

The value of a BIK is calculated by reference to the market value of the goods or services provided. For example, the value of a company car is calculated by reference to the list price of the car and its emissions.

Tax-free Benefits-in-Kind

tax-free benefits in kind for employees. include:

• Trivial benefits: Benefits costing less than £50 are not subject to tax provided certain conditions are met.
• Mobile phones: One mobile phone provided by your employer and any line rental and calls with that phone paid directly by your employer tax free. However, money your employer pays you to use your own mobile phone is taxable.
• Meals and refreshments: If an employer provides meals and refreshments to employees on the employer’s premises, this is tax-free. However, there are some restrictions on this, such as the meals and refreshments must be provided for the convenience of the employer, and they must not be lavish or extravagant.
• Travel and subsistence: If an employer pays for travel and subsistence expenses for employees, this is tax-free. However, there are some restrictions on this, such as the travel and subsistence expenses must be incurred for the purposes of the employee’s employment, and they must be reasonable.
• Cycle to work schemes: Cycle to work schemes are a tax-free way for employers to help their employees get to work by bike. Employees can choose to buy a bike through their employer and pay for it through salary sacrifice. This means that the cost of the bike is taken out of the employee’s salary before tax is deducted, so the employee saves money on tax and National Insurance.

Taxable Benefits-in-Kind

taxable benefits in kind for employees, include:

• Company cars: Employees who are provided with a car by their employer for their personal use are liable to pay tax on the benefit. The amount of tax that is payable is based on the list price of the car, and the CO2 emissions of the car.
• Private medical insurance: Employees who are provided with private medical insurance by their employer are liable to pay tax on the benefit. The amount of tax that is payable is based on the cost to the employer of the insurance policy.
• Childcare vouchers: Childcare vouchers are no longer available as a tax-free benefit. However, employees who were using childcare vouchers before they were withdrawn can continue to use them until they run out.
• Gym memberships: Employees who are provided with a gym membership by their employer are liable to pay tax on the benefit. The amount of tax that is payable is based on the cost of the gym membership to the employer.

For a more exhaustive list, please read the following HMRC guidance.

Employees Liability for Taxable Benefits in Kind

If you provide an employee with a taxable benefit in kind, they will be liable to pay income tax on the value of the benefit. The value of the benefit is called the “cash equivalent”. The amount of tax that the employee pays will depend on their income tax band, which currently could be 20%, 40%, or 45%.

In some cases, employees may also have to pay an additional National Insurance contribution (NIC) on taxable BIKs, such as vouchers or cash benefits.

Employer’s Liability for Taxable Benefits in Kind

In addition to the employee’s liability for income tax and National Insurance contributions, employers are also liable to pay Employer’s National Insurance contributions (NIC) on the value of taxable benefits in kind (BIKs) provided to their employees. The rate of Employer’s NIC is 13.8%.

The taxable value of a BIK is generally calculated by reference to the cost to the employer of providing the benefit, less any amount that the employee pays for it.

Employers are required to report the value of BIKs to employees on their annual P11D form and to HMRC on form P11D(b). The forms P11D and P 11D(b) must be submitted annually by 6th July, following the end of the tax year.

How We Can Assist

Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance and Tax Specialists, based In The UK

Understanding all the requirements for BIK planning and administration can be complicated and time-consuming. Our team of experienced business accountants specialise in handling employment-related issues and can assist you in creating beneficial packages while ensuring compliance with HMRC rules. For guidance on any Benefit in Kind matters, get in touch with us on 0121 633 2000 or alternatively email us at enquiries@friendllp.com