Limited Company Benefits In Kind - FAQs
What are benefits in kind?
Benefits in kind (BIK) are non-cash perks or benefits provided by an employer to an employee, which are subject to tax. Employers are required to report these benefits to HMRC using a P11D form.
Which items can qualify as a benefit in kind?
Typical items that are classified as BIK include;
Company cars
Private health insurance
Personal accommodation
Company phones with personal use
Non-business travel expenses
Non-business entertainment expenses
HMRC set out a full list of items here - www.gov.uk/guidance/how-to-complete-forms-p11d-and-p11db
Which items may not qualify as a benefit in kind?
Examples of expenses and benefits that may not qualify as BIK include;
Meals provided to all employees at a workplace
Some travel costs, such as a company travel card or parking
Business expenses paid for on a company credit card by an employee (provided the employee isn’t making a personal purchase)
Business related accommodation (such as a hotel booking)
Protective clothing
Work related training
Note, this list is not exhaustive, HMRC provides detailed guidance on which items should and should not be included as benefits in kind.
How do I report benefits in kind to HMRC as an employee or limited company director?
As an employee or director, your employer (or your own company, if you're the director) is responsible for reporting the benefits in kind. This is done using a P11d form.
Your employer or company is required to complete and submit the P11d to HMRC by 6th July after the end of the tax year (ending 5th April).
The P11d lists all the benefits you've received in the tax year, along with their value. It will also confirm the overall Class 1a National Insurance payable on those benefits.
How are benefits in kind taxed?
The value of each benefit is determined by its cash equivalent, this is how much it would cost you to pay for that benefit yourself. For example, if your employer provides you with private health insurance, the taxable value would be the cost of the premium paid by your employer on your behalf.
Benefits in kind are taxed through Income Tax and National Insurance. The way they are taxed can depend on whether you’re an employee or a director.
Income Tax - The value of the benefit is added to your income for tax purposes. This means you pay Income Tax on the value of the benefits you’ve received at 20%, 40%, or 45%, depending on your income tax band. For employees the additional tax can be paid via PAYE by adjusting your tax code. For limited company directors the additional tax can be paid via a self-assessment tax return.
Employers National Insurance - Employers also pay Class 1a National Insurance on the value of the benefits provided. These are calculated at a fixed rate of 13.8% of the value of the benefits. The employers pay this tax via PAYE once the P11d is submitted.
Further Advice
Always consider if a benefit or expense could be classified by HMRC as benefit in kind. If it could, then you can make a benefit in kind calculation to get an estimate of the tax payable.
In some situations, it may be more beneficial to pay for an expense personally than through a company.
If benefit in kind rules apply, then make sure to complete a P11D by the 6th July deadline. An accountant will be able to do this for you.
For further advice and guidance contact will@matrixaccountancyservices.com or call 01788 486065