By Matthew Perry
There are two types of benefit in kind:-
- Benefits in kind
- Trivial benefits in kind
Where benefits in kind can take the shape of a company car or medical perks of a job, trivial benefits are relatively low cost (sub-£50) items which aren’t included in the terms of the contract.
Benefits in kind
Benefits in kind are benefits which employees or directors receive from their employer that are not included in their salary or wages, sometimes termed “perks” or “fringe benefits”. Not all benefits in kind are taxable. If you earn less than your personal allowance you will not be taxed on any benefits in kind.
Some benefits in kind are tax-free. These include:
- certain childcare fees
- gym memberships
- pension contributions
- gifts (excluding cash or gift vouchers)
Trivial benefits in kind
A trivial benefit has to satisfy the following conditions in order to qualify for the new trivial benefits in kind exemption:
- no more than £50 per benefit
- not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed).
- in close companies, there is a limit on the total trivial benefits exemption of £300 per tax year per director (or officeholder).
The exemption also applies to family or household members, so, if there is a function where partners are invited, then each employee’s partner can share the £50 trivial benefit for the particular event. Similarly, where a close company director has the £300 per year limit, any benefits provided to their family or household members are also included within this limit.
If the individual benefit exceeds £50 (or an average of £50 per head), the whole amount then comes taxable as a benefit in kind, not just the excess over £50.
• Taking a group of employees out for a meal to celebrate a birthday
• Buying each employee a Christmas present
• Flowers on the birth of a new baby
• A summer garden party for employees
• Providing a working lunch for employees (because this is related to their employment)
• Gifts, incentives or events related to performance targets or results
• Gifts, incentives or events in relation to employment services e.g. team-building events
• Taxis when employees work late
The new tax exemption only applies to the tax that the employee would suffer due to benefits in kind. There is no change to the tax you can claim in your company tax return. For example, a birthday meal may well still count as entertaining, which is not allowed for corporation tax.
How to declare and pay tax on benefits in kind
If you receive any benefits in kind, and you complete a personal tax return, you must enter their value in your tax return for the relevant year even it tax has already been paid on them under PAYE. Your employer will also have to enter these when they file their tax return at HMRC. The return lists the benefits and expenses for the relevant tax year and you should receive a copy of this by 6 July following the end of the tax year. If you are the director of a limited company, then your employer will be your limited company.
Benefits in kind can be offset against your personal tax allowances under PAYE based on your PAYE code. You can check what your code means here.
If the benefits in kind are not included in your tax code for the year when you receive them, the tax on them may be collected after the end of the tax year. If you do not complete a self-assessment tax return, you may receive a form P800 telling you about an under- or overpayment of tax.
Contact us for advice
If you need advice on whether you have benefits you can claim, please get in touch. We’re always here to help make accounting simple for you.