Benefits in kind (BIK) refer to non-cash benefits that an employee receives from their employer in addition to their salary or wages. These benefits can take many forms, such as company cars, private medical insurance, or free use of a gym on the company premises. In the UK, BIK are subject to income tax and national insurance contributions (NICs) in the same way as cash earnings except that employees do not pay NICs on BIK.
The tax treatment of BIK depends on the specific type of benefit and the value of the benefit. Taxes on benefits are paid in two ways: either through the P11D method or the payrolling method.
The payroll implications of benefit in kind
As an employer, it is your responsibility to report the value of any BIK provided to your employees to HM Revenue and Customs (HMRC). This is typically done through the payroll system. Normally, the employee does not have to pay NICs on BIK while the employer is required to. Employers will need to report the value of the benefit to HMRC and deduct the appropriate amount of income tax and NICs from the employee's pay.
P11D forms for non-payrolled benefit in kind
In some cases, an employer may choose not to payroll a benefit in kind, either because the value of the benefit is small or because it is not practical to do so. In these cases, the employer is required to report the benefit to HMRC using a P11d form.
A P11D form is a tax return that is used to report benefits in kind that are not paid through the payroll system. It is typically completed by the employer and submitted to HMRC by the deadline of 6 July following the tax year in which the benefit was provided.
The P11d form must include the name and National Insurance number of the employee, as well as the type and value of the benefit in kind. The employer is also required to pay Class 1A NICs on the value of the benefit in kind, unless the benefit is exempt from NICs.
Benefit in kind tax
To calculate how much taxes employees have to pay on BIK, first calculate the value of the BIK and then apply the employee's income tax. On top of this, employers will need to pay NICs.
Some common benefit-in-kind items that are taxable in the UK include:
Fuel provided for company cars
Vouchers and credit cards
Low-interest or interest-free loans
Non-business-related travel and accommodation
Non-work related training
Loaning mobile phones and other electronic devices
Reporting benefit in kind
There are several ways to report BIK to HMRC. The most common method is through the payroll system, either as a separate amount or as part of the employee's gross pay. You can also report BIK using the Employer Payment Summary (EPS), which is an online service provided by HMRC.
If you are reporting BIK through the payroll system, you will need to ensure that you are using the correct tax codes and that you are deducting the appropriate amount of tax and NICs from the employee's pay. You will also need to keep accurate records of the BIK provided to your employees, including the value of the benefit and the date it was provided.
What are some examples of benefits in kind?
Some common examples of benefits in kind include company cars, private medical insurance, low-interest loans, company-provided accommodation, and gym memberships.
When are P11d forms due?
P11d forms must be submitted to HMRC by the 6th July following the end of the tax year.