Benefits in kind and expenses payments

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Benefits in kind and expenses payments

Benefits in kind are assessed on all directors and employees whose salary and benefits combined are £8,500 or more.

Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax.

A benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).

An employer is required to complete form P11D in respect of each employee earning £8,500 or more (including benefits) and all directors. Form P9D is required to record taxable benefits received by other employees. Benefits which are treated as pay for NIC purposes must be included on the deductions working sheet column 1A 'earnings on which employee's contributions payable'. (This should not include benefits liable to Class 1A NIC). Comprehensive records should be kept in relation to all benefits and expenses payments.

Non-taxable benefits

There are several benefits that are not normally taxable, even when an employee is within the P11D category. These can be substantial. The most significant are:
- Contributions to registered pension schemes (within limits)
- Car, motor cycle or bicycle parking facilities at or near the workplace
- Child care facilities or vouchers worth up to £55 per week
- Compensation/termination payments up to £30,000
- Welfare counselling services (with restrictions)
- Luncheon vouchers up to 15p per day
- Staff canteen and dining facilities (provided they are available to all directors and employees)
- Sports facilities (provided they are available to all directors and employees)
- Removal expenses, subject to HM Revenue & Customs limits
- Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits
- Awards under suggestion schemes (but there are restrictions)
- Use of a pool car
- Use of a mobile telephone - one mobile phone only per employee where provided
- The provision of representative accommodation (except for certain directors)
- Approved share incentive plans
- Use of cycles and cyclist's safety equipment used mainly for journeys between home and work
- Certain bus services for journeys between home and work
- Annual parties or similar functions costing up to £150 per head
- Payments towards household expenses incurred by employees working at home (generally £3 per week)
- Retraining expenses and courses
You could also consider establishing a company pension scheme, which allows your employees to make additional provision for their retirement by paying regular amounts and additional voluntary contributions.

Removal expenses

The tax-free limit is currently £8,000 and is available per move as opposed to per tax year. In order to qualify the expenses and/or benefits must normally be paid or provided in the tax year or subsequent year in which the job starts.

National insurance relief is available on all the tax qualifying expenditure, however where the £8,000 is exceeded the whole of the excess is chargeable to Class 1A and thus payable by the employer.

Small interest free loans

No tax is payable on 'cheap' or interest free loans to employees of up to £5,000.

Employee benefits

Tax efficient benefits can assist your company's profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.

Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. Every employer operating PAYE schemes should obtain a copy of Employer's Further Guide to PAYE and NICs (CWG2) - and should read it carefully.

Cars

When company cars are used for private motoring, the taxable benefit is normally calculated as a percentage of the list price. If an employee is also provided with fuel for private use in the car he or she is taxed on the same percentage applied to a standard value regardless of the value of the fuel used. Class 1A NICs must also be paid by the employer on the car and fuel benefits. National insurance planning - and don't forget that VAT is payable based on a special scale charge for fuel provided for private use.

Vans

If a company van is made available for private use a standard taxable benefit of £3,000 applies. There is a further benefitof £550 where fuel is provided for private use.

There is no charge for employees who have to take their van home and are not allowed other private use or the extent of private use is not significant. There is also no charge for use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee's use is not wholly or mainly private.

Expenses payments

These also need to be disclosed on forms P11D. However, the employees then need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties.

Where an employee is not required to complete a tax return, form P87 should be used instead.

How to save yourself work

Most employers can obtain a dispensation in respect of certain expenses payments, which could avoid the need to complete P11Ds in some cases. Application can be made at any time. Check with us for details.
Partnership basics
Partnership - general guides

Benefits in kind and expenses payments

Non-taxable benefits

Removal expenses

Small interest free loans

Employee benefits

Cars

Vans

Expenses payments

How to save yourself work

Partnership basics

Partnership - general guides

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