When an employer compensates an employee, it is only sometimes a purely financial package. Employment perks enjoyed by the employee in addition to salary are known as Benefits in Kind. This indicates that the benefits have a monetary value that serves as part of the employee’s pay but is not necessarily taxed as income.
In a competitive hiring market, Benefits in Kind often serve as the turning point in winning top talent. Employees can negotiate their Benefits in Kind to suit their specific lifestyle and needs so that each benefit offers genuine value. Sometimes, employees will trade a portion of their salary for particular types of benefits. In the UK, benefits in kind can provide tax benefits to both parties, but the taxation rules depend on the specific benefit and how it is provided.
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How Benefits In Kind Work in the UK
Benefits in Kind (BIK) in the UK are subject to a unique income taxation protocol. BIKs are considered to be part of an employee’s salary. While most common BIKs included in an employment package are not taxed as income, some popular BIKs will be taxed, as they are not considered part of the job and whose sole value is to the employee.
HMRC defines a Benefit in Kind as any service or benefit of monetary value the employer provides to the employee that is not “wholly, exclusively, and necessary” for their job roles and routines. This is often where the line is drawn between taxable and untaxed benefits.
Why Employers Offer Benefits In Kind
Benefits in Kind have evolved with the business world’s growing understanding of employee perks and the importance of providing workers with an enriched, balanced lifestyle to foster good health and performance. Benefits in Kind are now an essential part of employment packages. They are used to attract top talent, keep valuable employees, and ensure that employees can focus on their job without distractions of poor health or family concerns.
Common Examples of a Benefit In Kind
Benefits in Kind are appealing because they offer a bonus to the employee’s lifestyle. Here are some of the most common benefits offered that are considered BIK.
When an employee drives a company car, it becomes a BIK when used on personal time. The balance is determined by how much the vehicle is intended for personal use, and whether the company pays for fuel also plays a role in the taxability of the benefit.
Private Health Insurance
Because general health care is widely available, private health insurance is an employment benefit of considerable value. This may grant employees access to private clinics, doctors, and new treatments unavailable through the NHS. Private health insurance is always a taxed benefit.
Meals Catered or Vouchers
Many employers seek to improve employee health and job satisfaction by providing meals in the office or meal vouchers for those who travel, work at home, or eat outside the office. Catered or vouchered meals are considered benefits in kind but not taxable income.
When the company provides a phone, it is always considered a BIK. However, whether the phone is used primarily for work will determine how the benefit is classified. Company mobile phones and home phones for remote workers have balanced value, while home phones for non-remote workers are an entirely value-based benefit. This will determine whether the benefit is taxed as income.
Employee Fitness Centre
An increasingly popular employee perk is at-work fitness centres. This allows employees to exercise daily without a further commute and sometimes even during work hours, depending on their employment policies. Because employee fitness centres are on-premises, it is not considered a taxable benefit.
Childcare is always an untaxed benefit, contributing to the employee’s ability to work. Employers often offer various childcare options because many professionals have children who require childcare during work hours. These include on-premises nursery or daycare facilities, childcare vouchers, and stipends, partnered childcare providers, and childcare reimbursement.
Which Benefits In Kind are Tax-Free?
Here is a more comprehensive list of BIKs that are not taxed as income for the employee.
Tax-Free Benefits In Kind
Working Materials, Supplies, and Infrastructure
- Supplies and accommodation on business premises
- Company phones
- Work-at-home costs
When an employer provides the materials or expense coverage necessary for an employee to complete their job, these benefits are not taxed as income. This includes supplies, phones used primarily for work, and at-home expenses for remote workers related to work like internet, computers, or office furniture.
- Bicycles and cycling safety equipment
- Incidental overnight or work-to-home travel expenses
- Disabled travel to and from work
- Buses and Parking
When an employee must travel or find lodgings due to their work schedule, benefits offered in this regard are not taxed as income. This includes bicycles and busses, parking, rides home from working late, and occasional overnight lodgings.
- Meals and meal vouchers
- Sports and fitness facilities
If an employer offers perks on the work premises, these are generally not taxed as income. This includes sports and fitness facilities and meals. However, meals are typically universally untaxed, even if they take place off-premises.
Work-Related Life Benefits
- Pension expenses
- Health screenings and check-ups
- Return-to-work medical care
- Long-service, encouragement, or financial benefit awards
- Employer-sponsored training
- Childcare funds or services
- Counselling and welfare counselling
Lastly, certain lifestyle benefits that improve an employee’s ability to work are also untaxed as income. This includes pensions, certain performance and encouragement awards, sponsored training, childcare, and counselling. Some health benefits, including preventative screenings, check-ups, and return-to-work medical care, are also untaxed.
Taxable Benefits In Kind
Here are a few of the most common examples of Benefits in Kind that will be taxed as additional income.
- Company cars & fuel for personal use
- Private medical insurance
- Children’s school fees
- Discounted or free lodgings not essential to the job role
- Clothing allowance not essential to the job role
- Loans to employees over £10,000 interest-free or low interest
- Holidays and holiday vouchers
How to Report a Benefit in Kind
Reporting a BIK is essential for employers and employees to remain transparent with their workforce and compliant with taxation law. There are two methods to report a BIK:
1) P11D Form
Employers should file a P11D form for National Insurance contributions (NICs) paid by the company rather than the individual. This will allow you to itemise benefits in kind and their values for taxation purposes.
2) “Payroll” the Value
Employers can alternately list each benefit’s value in payroll reporting. This allows you to record the value of the benefit in payslips and tax monthly. To do this, employers must decide before the tax year starts. You must then register with the HMRC Payrolling Benefits in Kind (PBIK) online service. Our payroll services can help you with your employee benefit in kind reporting.
Building appealing employee benefits packages has become vital to attracting and keeping valuable employees. However, filing your benefits for tax purposes can take time and effort.
DS Burge & Co offer tax advice to businesses of all shapes and sizes and can help with employee benefits in kind for your limited company by expertly categorising each benefit as taxed or untaxed and handling the appropriate filings for taxation compliance.
Contact us today to help you start providing more comprehensive and properly filed benefits packages to your employees.