Understanding benefit in kind
A Benefit in Kind is a non-cash perk provided by an employer to an employee. These benefits can vary widely, with one of the most notable being a company car. However, these perks come with tax responsibilities, let’s explore in more detail.
Benefit in Kind refers to various non-monetary benefits such as insurance, housing, and gym memberships. While these are direct expenses for the employer, they are also subject to income tax for the employee. Similar to salary increments, Benefit in Kinds are taxed based on their value. However, unlike salary increases, the company, as the provider, is responsible for this tax.
Companies often offer company cars as an attractive joining incentive. While the company covers the purchase, insurance, maintenance, and fuel costs, they must also handle the Benefit in Kind Tax. Unlike other Benefit in Kinds, the tax on company cars is paid by the employer, as these cars are primarily for business use.
There are a number of factors that can influence the tax of a company car. Items such as the vehicle value, its emissions and fuel type. It is far more advantageous to explore the benefits with an electric vehicle. If you would like some advice and guidance please contact our team.
There are a number of other types of Benefit in Kind that employers can offer to their employees. These are generally taxed in accordance with their capital benefit:
- Accommodation: Typically offered to attract skilled workers from afar. The Benefit in Kind tax is based on the property’s annual value, with rates ranging from 0% to 10% depending on the property value.
- School Fees: Covering courses and private school fees can enhance employee loyalty and productivity. The Benefit in Kind tax for school fees is treated as regular income, reaching up to 45% for high earners.
- Loans: Companies can provide low interest or interest free loans allow employees to finance significant ventures with minimal borrowing costs. The Benefit in Kind rate is the difference between commercial loan interest and the company loan interest, taxed at the employee’s marginal rate.
- Private Medical Insurance: This offers superior healthcare benefits and is taxed based on the cost of the premium, with rates varying by coverage level.
There are 2 other key areas to note in regards to Benefit in Kind:
- Companies will generally deduct any benefits in kind via the employee’s salary using their PAYE system. In essence it works the same as income tax and national insurance contributions.
- Benefits in Kind such as onsite childcare and use of the cycle to work scheme are exempt from any tax implications. They are seen as ideal to support working families and promote a sustainable transportation programme.
In summary a Benefit in Kind will be applied on a case by case basis based on the needs of each individual employee. A company can not control what the HMRC charges for the tax on Benefits in Kind but it can be very strategic in the options it provides.
If you have any questions or would like to discuss this further please call our team on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.
You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
