Benefit in Kind
Benefits in Kind
In addition to salary earnings, the value of benefits in kind received by employees e.g. a company car is subject to income tax. There are certain exemptions for employees earning less than a certain amount.
Where employers reimburse expenses, the employer must report these on form P11D (as in Ireland). A claim for deduction must be made against employment income. Approval can be obtained in advance from HMRC to dispense with the requirement to omit particular types of pre-approved expenses from the form P11D which would otherwise need to be reported.
Employees are taxed on the basis of the value of the benefits. A benefit provided to a member of the family is also taxable in the same way. The benefit must be reported to HMRC . Small benefits of less than £50 each up to £300 annually are exempt.
BIK on Particular Assets
Where assets are provided for the use of the employee 20% of the assets market value is assessed at tax. Some assets and benefits are subject to particular rules.
Where a company car is available for private use, the benefit is subject to income tax. The benefit is calculated on the list price of the car. The charge benefit is a percentage of the price of the car. The value of a “company car” for this purpose is based on a table which is based on its price but factors in carbon dioxide emissions with a further charge. The tax charge is based on between 9% of the price increases to 37% in the case of high emissions. If fuel is paid for this is taxable, to the extent of private use.
No individual use of a pool car is assessed to tax. There are strict conditions on pool cars. It must be used by more than one employee and must normally be kept overnight at the residence of the employee. Any private use must be merely incidental. There are separate benefit in kind rules in respect of fuel.
Company vans are taxed on a more favourable basis. The benefit in kind is based on a relatively low fixed amoint. No benefit arises when the private use of a van is insignificant. The benefit of the private use of a van depends on its age.
Where living accommodation is provided and expenses paid are generally taxable on the employee where the cost is met by the employer. There are certain limitations and special rules apply. Accommodation provided is taxed on the annual value based on the gross rateable value.
Where the value is over £75,000 the charge is based on the official interest rate,. The charge does not apply where living on the premises is required as a part of the job or is traditional in certain sectors.
A benefit in kind is charged in respect of loans to employees below a stipulated interest rate. The benefit is charged on the difference between the official rate and the rate actually paid. Beneficial loans are charged to tax to the extent that it is below HMRC deemed market rates; 2.5%. The charge does not apply where all loans are less than £10,000 (excluding certain loans that qualify for other tax relief)
There are certain exempt benefits such as certain subsidies, pension contributions, canteens, certain meals, right to certain car park spaces, provision of a mobile phone, benefit aimed at encouraging employees to travel to work by public transport, Christmas parties and workplace nurseries for childcare.
Payments of up to £55.00 per week to approved childcare is allowed where it commenced before 5 April 2011.Most workplace nurseries and childcare voucher schemes are exempt. Childcare vouchers are nott exempt if the employee uses the Tax-Free Childcare scheme.
Pensions and share incentive benefits are dealt with separately.
P-11D Employees
The 11D employees are employees earning more than £8,500 and most company directors, other than full-time working directors controlling less than 5% of the company’s ordinary share capital. Employers must submit a P11D form to HMRC for each employee, listing benefits in kind.
Other employees are non-P11D employees. They are generally only taxed on benefits convertible to money and then on the basis of their resale value, even if used. In contrast, P11D employees are taxed based on the cost to the employer providing the relevant benefits, regardless of whether they are liquid or not.
When assessing the £8,500 figure, benefits in kind are included. Advances, apart from those related to occupational pension schemes or payroll giving schemes (charity contribution advances), are not deductible.
Vouchers, goods, services, and living accommodation are assessed similarly regardless of the employee category. Entertainment and hospitality vouchers provided by third parties unconnected with the employer are exempt, unless given in return for specific services. Cash vouchers give rise to a taxable benefit.
In the case of living accommodation, the employee is taxed on its annual value. This is its ratable valuation prior to the abolition of domestic rates. Since then, it is estimated. The employee is taxed on the greater of the rent paid by the employer (in the case of rented accommodation) and the accommodation’s annual value. Accommodation exceeding 75% is subject to an increased charge applicable to the excess over £75,000.
Contributions made by the employee are deducted. The appropriate percentage used in beneficial loan calculations, the official rate of interest, is set from time to time. The cost of providing the accommodation includes the purchase price plus improvements, less contributions made by the employee. If the property was acquired by the employer more than six years prior, its price may be replaced for tax purposes.
Regarding classic cars over 15 years old with a market value over £15,000 and exceeding the list price, the market value at the year-end applies instead of the cash price.
The benefit is calculated by applying a percentage to the car’s price, less the employee’s contribution. The percentage varies from 5 to 11% depending on efficiency criteria, with a maximum of 35%. The minimum is 0%. The emissions criteria were scaled to changes in the years leading up to 2017.
If the car is available for part of the year, the benefit is calculated proportionally. Where ancillary services are provided in connection with employment, including light, heating, maintenance, etc., if job-related, the taxable benefit may not exceed 10% of net earnings less contributions.
Taxable values of cars are based on the list price when new and adjusted relative to emissions. The benefit is based on the car’s price, less sums paid by the employee up to £5,000 (employee contribution).
Regarding the emissions criteria, there was a point of overlap about one minute ago [ph]. Now continuing with the substituted part:
Classic cars are subject to particular rules if they’re over 15 years old, have a market value over £15,000, and exceed the list price when new. In this case, the market value applies in calculating the benefit. The benefit varies from 0% for zero-emission cars to 11% for more standard cases, and up to 35% for high-emission vehicles. Legislation incorporates changes up to 2017, increasing the zero band for all cars. If a car is available for part of the year, the benefit is apportioned. Employee contributions are deducted.
A pool car is available to multiple employees, isn’t exclusively used by one employee, isn’t normally kept at an employee’s residence overnight, and its private use is incidental to business use.
Separate benefits in kind may arise concerning fuel, road licenses, insurance, etc. The same percentage used to calculate a car applies to fuel for private purposes, subject to a maximum figure, which was £21,100 for 2013.
A benefit in kind doesn’t arise for a van mainly used for business purposes where the employee isn’t permitted to use it for private journeys other than commuting. If it’s made available with no restriction, the income tax applies to a set taxable benefit figure of £3,000 in 2013. This is proportionally reduced if available for part of the year. There’s an additional benefit regarding fuel, with the taxable benefit deemed as £564. No taxable benefit arises concerning heavy goods vehicles unless used wholly or mainly for private purposes.
Loans at favorable interest rates may be charged to income tax as benefits in kind if below the published official rate. Loans made in the ordinary course of the employer’s money-lending business, on the same terms as to the general public, do not count for this purpose. Loans qualifying for tax relief are ignored. No benefit arises for tax purposes if the total outstanding in all loans made to an employee, apart from the above, does not exceed £5,000 (increasing to £10,000 in 2014).
If the loan is written off, a benefit immediately arises concerning the write-off, except on death if the write-off is attributable to employment in any way.