Tax free benefits available for employees
Benefits-in-Kind
In addition to wages and salaries, many reward packages include other items such as the provision of a car, health insurance or childcare. The employer may also choose to pay certain bills on behalf of the employee, like in respect of a home landline or utility bills. These are often referred to as Benefits-in-Kind, BIKs or simply ‘benefits’.
Are Benefits Taxable?
You need to be aware of the fact that these perks might seem pleasing but are not necessarily free of cost. They need to be considered in terms of PAYE where they are supplied ‘by reason of employment’ and could also be taxable.
The definition of benefit is very wide and not only covers items provided for the employee but also those provided for the family or household.
How are benefits taxed?
As an employee, you pay tax on company benefits like cars, accommodation and loans. Your employer takes the tax you owe from your wages through Pay As You Earn (PAYE). The amount you pay depends on what kind of benefits you get and their value, which your employer works out.
What are tax-free benefits-in-kind for employees?
Tax-free BIKs are possibly the most common benefits you’re likely to encounter, for the very reason that they are tax-free. Neither the employee nor the employer is required to pay additional tax as a result of these benefits. Some of these benefits are mentioned below:
- Employer contributions to an approved workplace or personal pension scheme
- Subsidised canteen meals so long as this is offered to all employees
- In-house leisure facilities such as gym, pool table or other entertainment
- Other in-house facilities such as childcare services at your place of work
- Staff parties so long as every employee is invited and cost per person is not over £150 per year
- Bicycles and cycling equipment as part of the Cycle to work scheme.
- Gifts for reasons that are unconnected to the performance of your job such as birthday, wedding or retirement (but the value of these gifts should not exceed £250 in a single year
- Trivial benefits which are less than £50 in value and are not cash or cash voucher such as free coffee and tea in the office
- Office or workplace car park
- Uniform or safety equipment provided which is necessary for you to complete your job
Some taxable benefits
The most common benefits that are taxable are mentioned below:
- meals
- vacation trips
- gift cards, car
- tickets to events
- memberships to clubs.
These types of benefits are generally taxed at fair market value, which is what the employee would pay if they were to get it on their own. Other than this You have to pay tax on things that are paid in cash, as they’re treated as earnings.
How do I report and pay for tax on a benefit-in-kind?
The responsibility to declare the BIKs that have been received by employees is on the employer. To do this they must complete and submit the P11D form to HMRC by 6 July following the tax year in which the benefits were received.
I am a Fellow Certified Chartered Accountant with over 10 years’ experience, and the Director of Expert Accounting and Finance.
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