Heard of benefit in kind (BIK) before and know how it works or, never heard of it before so want a little bit more clarity? You’re in the right place.
You may have heard of Benefits In Kind before if…
What is Benefit In Kind?
Benefit In Kind is a non-cash benefit of monetary value that you can provide for your employee. These can also be referred to as notional pay or perks, because they have monetary value, they have to be treated as taxable income. This means it must be deducted from your employees PAYE.
Ultimately, Benefit In Kind is a benefit that employees receive that cannot be converted into cash but, it has cash value.
What are some examples of Benefits In Kind?
There are a number of things that can be considered Benefits In Kind that are taxable. These can include a company car, loan, private health insurance, non-business travel expenses and non-business entertainment expenses.
Other examples of Benefits In Kind which are not taxable are; staff meals that are provided at a canteen, certain childcare arrangements, workplace safety equipment, contributions to a pension and workplace sports facilities.
The HMRC website has a breakdown of information about the different types of expenses and benefits as well as the associated tax rules.
As an example, if an employee is given a Benefit In Kind cash equivalent of £1,200 and is paid monthly, the Benefit in Kind of £100 is added to their taxable pay each month.
How do I report and pay Benefits In Kind?
Benefits in Kind can be reported in a number of ways. They can be reported via the following:
- HMRC’s PAYE online service
- Payroll software
- Submissions of the P11D and P11D(b)
- HMRC’s online end of year expenses and benefits service
All employers must report all Benefits in Kind at the end of tax year. Benefits contribute to an employee’s income so, this means that there could be National Insurance contributions to be paid on them. These are paid by the employer at 13.8% of the determined value of the Benefits in Kind.
Benefits in Kind can be reported and taxed in two ways, either by submitting the P11D form or, by paying tax on your benefits through your payroll.
Submitting the P11D form
A P11D tax form is a way of recording the employment benefits that employees of a company have received throughout the year. If you are an employer, you need to submit a form for every employee who has received benefits. If you are self employed then you need to report BIKs for your employees.
Paying tax on benefits through payroll
Another way to pay Benefits in Kind is to deduct and pay tax on employee benefits through your payroll. To do this, you need to register with the HMRC before the start of the tax year (the 6th of April). It is important to remember that the P11D form is not required if you are pay rolling benefits but, you still need to submit a P11D(b).
Key deadlines to remember
- 6thJuly following the end of the tax year – Online submission of P11D forms
- 6thJuly – provide your employees with a copy of information on your submitted form
- 6thJuly – Submit P11D(b)
- 22ndJuly – Payment needs to be made of Class 1A National Insurance that is due on the expenses and benefits provided
- 22ndOctober – Payment of tax and National Insurance owed under a PAYE Settlement Agreement
- Monthly payments via payroll – Payment of any PAYE tax or Class 1 National Insurance owed on expenses or benefits.
Should Benefits In Kind show on a payslip?
Payroll Benefits in Kind will be shown on the employee’s payslip as a separate item and is included in their total taxable pay for the year on their P60 form. For anyone starting or leaving, any payrolled Benefits In Kind is included in their taxable pay to date on a P45 form.
If you provide your employee’s with Benefits In Kind and would like some assistance with how to manage this, get in touch with us at Cooper Accounting. We’re on board to help.