Benefits in kind guide. Unlimited accountant support and online software

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1 Benefits in kind guide Unlimited accountant support and online software

2 Benefits in kind guide Contents: 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. What is a benefit? What needs to be reported? Statutory exemptions Dispensations p.02 p.03 p.06 p.09 This guide will help you work out what counts as a benefit, and whether you ll need to report it to HMRC. p.01

3 What is a benefit? When you receive anything from your company which benefits you personally and is not wholly, exclusively and necessary to your business, it is likely to be classed as a benefit In kind. You may be liable to pay Income Tax as an employee and National Insurance Contributions as an employer on any benefit you receive. Perks which are not essential to your business are taxed in order to prevent you from disguising your payment through benefits. It s a good idea to consider them as cash equivalents which contribute to your income. Filling out a P11D form If you are the director of your company then you are automatically liable to pay tax regardless of your income. However, if you employ others in your limited company, it will only become necessary to account for their perks if their annual salary and benefits combined are in excess of 8,500. Determining whether something is a benefit or a necessary business expense can sometimes be difficult if it has a dual purpose and you use it for both business and personal use. HMRC will not usually permit tax free benefits that have a dual purpose, unless the personal use is a consequence of the necessary business use, and providing the personal use is insignificant. Your benefits are recorded at the end of the tax year via a P11D form, which you can learn more about here. Some benefits are tax free and therefore do not need to be reported on your P11D, this is either because: They re covered by a dispensation (an arrangement agreed with HMRC on certain benefits, to avoid having to report a benefit, then file a matching claim for the allowable expense you have incurred) Or, a benefit registers as a statutory exemption from tax (covered below) This guide will go over which benefit types fall into which category. p.02

4 What needs to be reported? Via NRMA Motoring Company car When a company-paid vehicle is made available to an employee (or 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 P11D. As an incentive for companies to be more environmentally friendly, tax relief is determined in part by the vehicle s CO2 emissions. To establish your tax liability, HMRC assign a percentage based on your 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 the market price the day before it was registered, plus any additional enhancements and delivery fees. There is also an additional charge if the company pays private fuel costs which can be calculated through accurate mileage records. The only exception is if there is a company pool car, but it must be: Kept locked at the work premises that are separate to your home Used for business only Used by several company members - not just you Company van It is considered unreasonable to expect van drivers to store their vehicle in a depot overnight and fetch it before work every morning. This means that the commuting time in a van is considered a necessary business use and therefore incidental private use is ignored by HMRC. You can find your vehicle s liability by cross referencing the two on HMRC s table. Any vehicle weighing in excess of 3,500kg will incur no taxable benefit, as will any pooled van. p.03

5 During the 2014/15 tax year all company vans providing private use will report a P11D value of 3,000 regardless of their original market value, or any additional enhancements it may have. This value may be reduced if: The van is only supplied for part of the year, You make a contribution to the private use of the vehicle, or Its use is shared with another employee If there is a fuel benefit provided by the employer, the employee is charged a flat rate of 581 per annum for the 2014/15 tax year. Home as an office If it is necessary for you to work at home and it is not just for the purpose of additional work being conducted at home, then you are entitled to 4 a week benefit cover without having to report on your P11D. When recorded as an expense, as opposed to a benefit, it is treated with a lot of suspicion by HMRC, and should consequently only be claimed for if it s absolutely necessary and a significant cost. Director s loans Mileage allowance and passenger payments Employees using their own vehicles are entitled to a certain amount of mileage cover, tax free. This approved mileage allowance is calculated by adding together the total miles travelled in the course of your business, that are incurred as a driver and have not been reimbursed, multiplied by a standard rate expressed per mile. For the 2014/2015 tax year, this is 45p for the first 10,000 business miles in a tax year, then 25p for each subsequent mile. You can claim an additional 5p per passenger per business mile for carrying fellow employees in a car or van on journeys which are also work journeys for them. Only payments specifically for carrying passengers count. Anything you withdraw from the company which is not a dividend or a salary and is over and above what you ve personally put into the company is classified as a director s loan and must be recorded on your Crunch account. If you owe your company in excess of 5,000 (interest free) at any given time, the loan is classed as a Benefit in Kind and you will need to personally submit it on your P11D. Your Company will not be charged PAYE, but you will be required to pay class 1A National Insurance tax at 13.8% on the value of the benefit. 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. p.04

6 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 you re entitled to and how to claim it. Via Ed Ivanushkin p.05

7 Statutory exemptions Via Gary Knight When considering whether to pay for a benefit through your limited company you may want to weigh up the tax implications. Sometimes paying through your company will be more expensive than paying personally. Fortunately, there are a number of tax free benefits which are available to your limited company that you may wish to take advantage of. Company mobile You are allowed to provide each employee (including yourself as the director) with one mobile phone free of tax and National Insurance, to use for private and business use without having to record it on your P11D. This will cover the full bill, including line rental, the cost of any calls made and any data allowance. In order to qualify for a Benefit in Kind the contract must be in the company s name and the phone must be designed or adapted for the primary use of making and receiving spoken messages. If the contract falls under a personal contract you will only be able to 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 messaging because of the ever-evolving uses of mobile technology. Up until 2006 legislation deemed smartphones, BlackBerries and all personal digital assistants as computers. However, under the new 2006 Finance Act, as long as the primary use is for telephone calls, all extraneous services the device provides are permissible tax free (watch this law though as it s in its formative years and is likely to be reviewed). 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. If you use a handsfree set you may require a different sim card - this is permissible as long as the number and contract remain the same. p.06

8 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. If you choose you can split the cost between multiple events of a similar nature, providing you do not exceed the annual sum of 150 (inc. VAT) per employee. Health checks 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 decide to go through a direct channel, you will need a letter between you and the provider confirming the amount you intend on paying. A child is eligible up until their 15th birthday (16th if disabled). In order to 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 determine the employee s general level of health. Late night taxi fares Your limited company can provide a late night taxi ride from work to home, providing you, or the employee, meet the follow conditions: You do not exceed 60 taxi rides per year On the day of the journey, you were required to work later than usual and until at least 9pm It is not a regular requirement to work after 9pm By the time you or the employee stops work, either public transport has ceased or it would be unreasonable to expect its use The transport provided is by taxi or equivalent road transport Have the child/stepchild living with them Be the one providing the maintenance costs for the child Use a registered carer - you cannot use a relative as a carer unless they run a childcare business and are looking after other children also Trivial benefit There is no monetary limit to determine what qualifies as a trivial benefit - it s largely down to your personal judgement. To give an example, a seasonal gift or a standard bottle of wine would pass as trivial and would subsequently not be taxed. No cash benefit or benefit which has a money s worth - i.e. one that can be converted into cash, or something of direct monetary value - can be treated as trivial. There s not much ground for debate over what defines trivial. It s not a matter of personal opinion, it s what HMRC consider trivial, which in reality is very little. p.07

9 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 it s not significant, and that the primary focus remains business related. Vehicles, boats or aircrafts, if you have one, do not apply. p.08

10 Dispensations Via Sage Solar What is a dispensation? What s covered? Dispensations remove the reporting requirements for certain expenses and benefits. You can apply for a dispensation through HMRC. If the application is successful, you: 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 Won t have to submit claims for deductions against expenses previously reported on forms P11D or P9D Won t have to pay tax or National Insurance contributions on these items Once granted, dispensations last indefinitely. However, HMRC reviews them regularly (usually at intervals of five years or less) to make sure that the conditions under which they were first issued still apply. You can apply to HMRC for a dispensation to cover expenses or benefits for which your employee gets a full tax deduction. The main expenses routinely covered by a dispensation are: travel, including subsistence costs associated with business travel fuel for company cars hire car costs telephones business entertainment expenses credit cards used for business fees and subscriptions 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. p.09

11 Requirements In order for dispensations to be made you must have certain systems in place to make sure that the claims aren t excessive or for any disallowed items. Usually, this must be a person independent from the employee claiming. If you can t get an independent person to this - for example, if you are a sole employee of your company - then you will only be able to obtain a dispensation if you: 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 dispensation can take effect from the beginning of the tax year in which you applied for it if you were paying those expenses and making the benefit payments at that earlier date. You should use the A to Z guide to check which expenses can be included in a dispensation before you start to complete the online application, as you can t save your progress once you ve started and return to it at a later time. HMRC aims to respond within 15 working days. ensure all expenses claims are supported by receipts for the expenditure demonstrate that the claim relates to expenditure that can be covered by a dispensation - your receipts may be sufficient for this purpose, but if not you must retain additional information If your circumstances change with regards to any any claimed items you must advise HMRC as soon as possible. If you fail to do so, HMRC may revoke the dispensation and collect the tax you would have had to pay. How to apply You can apply using this online form. You will need to provide details about the following expenses: Need more business advice? The Crunch blog has a whole section dedicated to giving you the 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 p.10

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