11/04/2024

Business tips Tax

What are Benefits in Kind?
And do they affect you or your business?

 

For employers and their employees, benefits in kind are often a minefield and can be costly if ignored, or not taken seriously.

To explain, benefits in kind are, as the name suggests, benefits which the employee receives over and above their usual salary.

This applies to company directors too. Previously, benefits will not have been reported to HMRC through your payroll system. However, they do need to be declared for each applicable tax year.

Northern Accountants are here to assist and support you through the process. Please read on to find out more about benefits in kind and how we can help you.

Tax benefits

What types of benefits in kind are there?

There are quite a few, but here are the usual suspects…

Company car

  • Your employer may provide a company car to enable you to perform your duties effectively.
  • For example, where the car is used for private use, then a benefit in kind arises. And let’s be honest here – that is usually the case.
  • How much benefit can be claimed? The amount of benefit is calculated using the list price of the car and its CO2 emissions, therefore an Electric Car can be much more tax efficient as a Company Car.

Company cars and benefits in kind

Company van

  • If you have use of a company van, where there is an element of private use and commuting, your employer will need to report this.
  • Also, there is an amount for the benefit of the van.
  • These are, for the 2023/24 tax year – £3,960. Furthermore, if fuel is provided, there is also a benefit for this which is £757 in the 2023/24 tax year.

Medical insurance

  • If your employer pays for medical insurance and you are covered on the policy this needs to be reported to HMRC as a benefit in kind.

Medical insurance and benefits in kind

Loans to employees & directors

If your employer provides beneficial loans, interest-free loans or where interest is charged below the HMRC guidelines (and if you are a company director this includes you too) a benefit in kind arises and should be reported.

By no means is this a complete list. Here is a link to HMRC’s website for the exhaustive list of benefits in kind for you to take a look at, the government website.

So, how much do you have to pay HMRC, and what are the costs associated with benefits in kind?

As an employee, you will usually see your tax code adjusted to reflect the perceived value of the benefit in kind

If you are the employer, you (i.e. the business) will have to pay Class 1A NIC on the value of the benefits in kind. This is calculated at 13.8% on the total benefits

Benefits in Kind Costs Example

David is an employee, and he has the use of a company car. This is used privately, where the car is available throughout the tax year.

The list price of the vehicle is £25,000, registered in 2020 and the employee did not make any contribution towards the vehicle costs.

The car runs on unleaded fuel and has a 1600cc engine with CO2 emissions of 159.

How an electric car can save you tax

For the 2023/24 tax year, the following benefits apply:

  • Car benefit charge £9,000
  • Car fuel benefit charge £10,008

Therefore, the total benefits on which Class 1A NIC is payable is £19,008 – this means that your employer will have to pay £2,623.10 in NIC.

As an employee, and if you are within the basic rate tax band, your additional tax liability will be (based upon the 2023/24 tax year).

  • Company car tax £1,800.00
  • Company car fuel tax £2,001.60
  • If you are a higher-rate taxpayer, then these increase to £3,600 and £4,003.20 respectively.

All things being equal, HMRC will amend your tax code to take account of these benefits. HMRC will normally post details of the new tax code to you and your employer.

How you can take advantage of benefits in kind to save tax

How do you report benefits in kind to HMRC?

If you are an employee, you don’t need to do anything – your employer will deal with this for you. Therefore, your employer must submit a P11d Form for anyone receiving a benefit in kind.

This runs in line with the tax year, 5 April. The form must reach HMRC by 6 July, and your employer must pay any Class 1A NIC due by 19 July or 22 July, if the forms are filed electronically.

What Next?

Here at Northern Accountants, we can help you identify the potential pitfalls and provide clear, no-nonsense support.

As our client, we would review your accounting and payroll records to ensure you comply with HMRC guidelines in relation to benefits in kind.

If you would prefer us to complete and submit the relevant forms to HMRC, we can do this for you too.

To find out more ways you can pay less tax consider signing up for our newsletter to receive the most recent top tips.