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Benefits in kind

guide

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Benefits in kind guide


Benefits in kind are benefits which employees or directors receive from their
company of employment, but which are not included in their salary or
wages. They are also sometimes called perks or fringe benefits.
Benefits in kind include things like company cars, private medical insurance
paid for by the employer and subsidised loans. Some benefits in kind will
not be taxed, whereas some will be taxed only for people who are not in
lower paid employment, and some will be taxed for everyone, whatever their
income might be.
This guide will help you work out what counts as a benefit, and whether youll
need to report it to HMRC.

You live life.


We do the numbers.

Contents:

BECKI Senior Accountant

What is a benefit?

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What needs to be reported?

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Statutory exemptions

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Dispensations

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What is a benefit?
When you receive anything from your company which benefits you

Perks which are not essential to your business are taxed in order to prevent

personally and is not wholly, exclusively and necessary to your business, it is

you from disguising your payment through benefits. Its a good idea to

likely to be classed as a benefit in kind. You may be liable to pay Income Tax

consider them as cash equivalents which contribute to your income.

as an employee and National Insurance Contributions as an employer on


any benefit you receive.

Filling out a P11D form

If you are the director of your company then you are automatically liable

Your benefits are recorded at the end of the tax year via a P11D form, which

to pay tax regardless of your income. However, if you employ others in your

you can learn more about here. Some benefits are tax free and therefore do

limited company, it will only become necessary to account for their perks if

not need to be reported on your P11D, this is either because:

their annual salary and benefits combined are in excess of 8,500.


Theyre covered by a dispensation (an arrangement agreed with HMRC
Determining whether something is a benefit or a necessary business expense

on certain benefits, to avoid having to report a benefit, then file a

can sometimes be difficult if it has a dual purpose and you use it for both

matching claim for the allowable expense you have incurred)

business and personal use. HMRC will not usually permit tax free benefits

Or, a benefit registers as a statutory exemption from tax (covered below)

that have a dual purpose, unless the personal use is a consequence of the
necessary business use, and providing the personal use is insignificant.

This guide will go over which benefit types fall into which category.

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Via NRMA Motoring

What needs to be reported?


Company car

You can find your vehicles liability by cross referencing the two on HMRCs
table. There is also an additional charge if the company pays private fuel

When a company-paid vehicle is made available to an employee (or

costs which can be calculated through accurate mileage records.

director) for the purpose of work and is also available for private use, then a
Benefit in Kind tax is applied and subsequently needs to be reported on your

The only exception is if there is a company pool car, but it must be:

P11D.
Kept locked at the work premises that are separate to your home
As an incentive for companies to be more environmentally friendly, tax relief is

Used for business only

determined in part by the vehicles CO2 emissions.

Used by several company members - not just you

To establish your tax liability, HMRC assign a percentage based on your

Company van

CO2 emissions, (shown on the Vehicle Registration Document), which you


then deduct from the list price of your vehicle. This is worked out by adding

It is considered unreasonable to expect van drivers to store their vehicle in

the market price the day before it was registered, plus any additional

a depot overnight and fetch it before work every morning. This means that

enhancements and delivery fees.

the commuting time in a van is considered a necessary business use and


therefore incidental private use is ignored by HMRC.

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Any vehicle weighing in excess of 3,500kg will incur no taxable benefit, as will

Home as an office

any pooled van.


If it is necessary for you to work at home and it is not just for the purpose of
Your company van will report a certain value regardless of its original market

additional work being conducted at home, then you are entitled to 4 a

value, or any additional enhancements it may have.

week benefit cover without having to report on your P11D.

This value may be reduced if:

When recorded as an expense, as opposed to a benefit, it is treated with a

The van is only supplied for part of the year,

lot of suspicion by HMRC, and should consequently only be claimed for if its

You make a contribution to the private use of the vehicle, or

absolutely necessary and a significant cost.

Its use is shared with another employee


Directors loans
If there is a fuel benefit provided by the employer, the employee is charged a
flat rate. Visit our rates page for the current figures.

Anything you withdraw from the company which is not a dividend or a


salary and is over and above what youve personally put into the company

Mileage allowance and passenger payments

is classified as a directors loan and must be recorded on your Crunch


account.

Employees using their own vehicles are entitled to a certain amount of


mileage cover, tax free. This approved mileage allowance is calculated by

If you owe your company in excess of 5,000 (interest free) at any given time,

adding together the total miles traveled in the course of your business, that

the loan is classed as a benefit in kind and you will need to personally submit

are incurred as a driver and have not been reimbursed, multiplied by a

it on your P11D. Your Company will not be charged PAYE, but you will be

standard rate expressed per mile.

required to pay class 1A National Insurance tax at 13.8% on the value of the
benefit.

Only payments specifically for carrying passengers count. Visit our rates
page for the current figures.

If you are paying under the HMRC official rate, or no interest, you must
declare it on your annual Self Assessment, as you may be taxed on the
subsequent interest.

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Assets transferred at less than the market value


A benefit in kind occurs when your limited company transfers assets to you
for a lower cost than the market value at the time the transaction takes
place.
Tax is applied on the difference between the market value of the asset and
the insider trading price you paid for it.
Payments made on your behalf?
You must pay a benefit in kind on the value of the covering cost for any
settlement or payment paid for you personally on behalf of the company.

Want help with business expenses?


We have a whole separate guide to business expenses, which you
can download here. Learn what youre entitled to and how to claim it.

Via Ed Ivanushkin

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Via Gary Knight

Statutory exemptions
When considering whether to pay for a benefit through your limited company

In order to qualify for a benefit in kind, the contract must be in the companys

you may want to weigh up the tax implications. Sometimes paying through

name and the phone must be designed or adapted for the primary use of

your company will be more expensive than paying personally.

making and receiving spoken messages.

Fortunately, there are a number of tax free benefits which are available to

If the contract falls under a personal contract you will only be able to

your limited company that you may wish to take advantage of.

account for the business calls as an expense but will not be able to claim for
the personal use. Legally, the main purpose of the device has to be verbal

Company mobile

messaging because of the ever-evolving uses of mobile technology.

You are allowed to provide each employee (including yourself as the

Up until 2006 legislation deemed smartphones, BlackBerries and all personal

director) with one mobile phone free of tax and National Insurance, to use

digital assistants as computers. However, under the new 2006 Finance Act,

for private and business use without having to record it on your P11D. This will

as long as the primary use is for telephone calls, all extraneous services the

cover the full bill, including line rental, the cost of any calls made and any

device provides are permissible tax free.

data allowance.
So for instance, laptops, tablets and satnavs do not qualify as mobiles even
if they have the capability to make calls, because their primary use is not
intended for making and receiving calls. BlackBerrys and smartphones do
qualify as mobiles.

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If you use a hands free set you may require a different sim card - this is

By the time you or the employee stops work, either public transport has

permissible as long as the number and contract remain the same.

ceased or it would be unreasonable to expect its use

The transport provided is by taxi or equivalent road transport


Annual event
Childcare Vouchers
You are entitled to host an annual event - most commonly a Christmas party
- tax free, providing you meet certain conditions.

You may be able to supply each employee with up to 243 per month, tax
free, childcare support, providing the employee meets certain conditions.

You may invite a partner but you must not exceed expenditure of 150 (inc.
VAT) per head. You and your partner count as one head.

There are two ways in which you can allocate payment: either by direct
agreement with a childcare provider, or through a voucher scheme. If you

If you choose you can split the cost between multiple events of a similar

decide to go through a direct channel, you will need a letter between you

nature, providing you do not exceed the annual sum of 150 (inc. VAT) per

and the provider confirming the amount you intend on paying.

employee.
A child is eligible up until their 15th birthday (16th if disabled). In order to
Health checks

qualify for childcare you must meet these conditions. Your employee, or you,
must:

Any employee of your limited company is entitled to one tax free health
check in any given year. The health check is a physical examination to

Have the child/stepchild living with them

determine the employees general level of health.

Be the one providing the maintenance costs for the child


Use a registered carer - you cannot use a relative as a carer unless they

Late night taxi fares

Your limited company can provide a late night taxi ride from work to home,

Trivial benefit

run a childcare business and are looking after other children also

providing you, or the employee, meet the follow conditions:


There is no monetary limit to determine what qualifies as a trivial benefit - its
You do not exceed 60 taxi rides per year

largely down to your personal judgement. To give an example, a seasonal

On the day of the journey, you were required to work later than usual and

gift or a standard bottle of wine would pass as trivial and would subsequently

not be taxed.

until at least 9pm

It is not a regular requirement to work after 9pm


No cash benefit or benefit which has a moneys worth - i.e. one that can be
converted into cash, or something of direct monetary value - can be treated
as trivial.

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Theres not much ground for debate over what defines trivial. Its not a matter
of personal opinion, its what HMRC consider trivial, which in reality is very little.
Work-related training expenses
Any training conducted with the intention of improving the ability of an
employee (or yourself) to do a current or future job at the company is
completely tax free.
Training encompasses a broad range of activities - from enhancing your
leadership & social development skills for work, to practical and theoretical
skills that you are reasonably likely to implement in your work.
The tax exemption extends to necessary travel and childcare cover during
the training, and any costs incurred for any examinations or learning aids.
Training, or training-related travel and subsistence, which provides
entertainment, recreation, reward or an inducement, remains taxable.
However, when the entertainment is available as a subsequent addition
to the training and is not too extravagant - for example, a swimming pool
available at the accommodation provided for the training - then the
entertainment is tax free.
Supplies and services provided by your business
Supplies such as equipment, stationery and consumables provided to you to
perform your duties are allowable for occasional private use, providing that
its not significant, and that the primary focus remains business related.
Vehicles, boats or aircrafts, if you have one, do not apply.

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Via Didriks

Dispensations
What is a dispensation?

Whats covered?

Dispensations remove the reporting requirements for certain expenses and

You can apply to HMRC for a dispensation to cover expenses or benefits for

benefits. You can apply for a dispensation through HMRC. If the application

which your employee gets a full tax deduction.

is successful, you:
The main expenses routinely covered by a dispensation are:
Will no longer have to report on the benefit or expense in question at the

end of the tax year on forms P11D or P9D

Travel, including subsistence costs associated with business travel

Wont have to submit claims for deductions against expenses previously

Fuel for company cars

Hire car costs

reported on forms P11D or P9D

Wont have to pay tax or National Insurance contributions on these items

Telephones
Business entertainment expenses

Once granted, dispensations last indefinitely. However, HMRC reviews them

Credit cards used for business

regularly (usually at intervals of five years or less) to make sure that the

Fees and subscriptions

conditions under which they were first issued still apply.


An A to Z list of what you can apply for as a benefit or expense has been
provided by HMRC here. If a dispensation can be claimed, it will be listed on
that particular benefit/expenses entry.

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Requirements

You can apply for a dispensation at any time. Generally, they will take effect
from the date on which HMRC issues them. However, HMRC may agree your

In order for dispensations to be made you must have certain systems in

dispensation can take effect from the beginning of the tax year in which

place to make sure that the claims arent excessive or for any disallowed

you applied for it if you were paying those expenses and making the benefit

items. Usually, this must be a person independent from the employee

payments at that earlier date.

claiming.
You should use the A to Z guide to check which expenses can be included
If you cant get an independent person to this - for example, if you are a

in a dispensation before you start to complete the online application, as you

sole employee of your company - then you will only be able to obtain a

cant save your progress once youve started and return to it at a later time.

dispensation if you:

HMRC aims to respond within 15 working days.

Ensure all expenses claims are supported by receipts for the expenditure

If your circumstances change with regards to any any claimed items you

Demonstrate that the claim relates to expenditure that can be covered by

must advise HMRC as soon as possible. If you fail to do so, HMRC may revoke

a dispensation - your receipts may be sufficient for this purpose, but if not

the dispensation and collect the tax you would have had to pay.

you must retain additional information

How to apply

Need more business advice?

You can apply using this online form. You will need to provide details about

The Crunch blog has a whole section dedicated to giving you the

the following expenses:

best advice on how to run your small business. Click here to discover.

Travel, including subsistence costs associated with business travel


Fuel for company cars - the amount paid should not exceed the Advisory
Fuel Rates
Hire car costs
Telephones
Business entertainment expenses
Credit cards used for business
Fees and subscriptions

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This document contains guidance only and is not a substitute for tailored advice from a Crunch
accountant. Contact your Crunch Account Manager for advice pertaining to your specific
business and situation. All content is copyright E-Crunch Ltd 2015.

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