Benefits in Kind
As an employee you will obviously expect to receive a salary commensurate with the work that you do. This is subject to Income Tax above a certain threshold, and you will also be required to pay National Insurance Contributions or NICs, which are put towards benefits like the Basic State Pension. However, you may also be entitled to other benefits that are not part of your salary. These are known as ‘benefits in kind’.
Benefits in kind (also known as perks or fringe benefits) can be varied and wide ranging. Some of the most common of these benefits include a fuel allowance and company car. Contributions to schemes such as private medical insurance also qualify as benefits in kind.
National InsuranceAlthough benefits in kind are, by definition, not counted as part of an individual employee’s salary, many are still subject to a number of forms of taxation. Primarily, all taxable benefits in kind have Income Tax levied on them by default.
In addition to this, they will be subject to Class 1A National Insurance Contributions (NICs), which are calculated at 13.8% in 2012-13 of total cash value of the benefits. In the vast majority of cases, however, you will not be required to take any action as an employee. Rather, the responsibility for payment of the Class 1A NICs rests with the ‘secondary contributor’, this being the employer.
In most cases, the Pay As You Earn (PAYE) system will apply; this is covered in more detail, along with the basics of income tax and National Insurance, elsewhere on this site (see Top 5 Problems With PAYE Income Tax, and What is Income Tax?).
There are a number of benefits in kind that will be subject to tax under all circumstances. These are certain share option schemes, accommodation, and non-cash vouchers. As you can see, this list is fairly short.
However, some benefits in kind are taxable only if the employee is earning above a certain threshold; this is currently set at £8,500. These benefits are also subject to tax when a company director is the recipient, regardless of the individual’s income. This category of benefits in kind includes:
- Company cars and vans which are available for personal as well as business use
- Low interest loans offered by employers totalling over £5,000
- Gifts from an employer
- Certain educational scholarships
- Contributions to private medical insurance schemes
Non-Taxable BenefitsFinally, there are a significant number of benefits in kind that are not normally subject to tax, regardless of the employee’s income. These include:
- Subsidised meals with the proviso that they must be available to all employees
- Car parking and specific expenses incurred travelling from home to work
- Work-related relocation expenses totalling no more than £8,000
- Uniform, provided that it has the company logo on to be deemed a non-taxable benefit
- Business gifts totalling no more than £250
- Specific crèche and nursery schemes
- Training courses
- Staff parties
If you are an employer, it is important to understand your responsibility regarding benefits in kind. The relevant calculations are carried out on form P11D, which is available from your Tax Office. You should also remember that Class 1A NICs must be paid by 19th July every year.