Benefits in kind are assessed on all directors and employees.
Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax. From 6 April 2016, changes were made to prevent such salary sacrifice arrangements.
A benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).
The £8,500 threshold for reporting purposes has been removed from 6 April 2016. From this date, HM Revenue & Customs (HMRC) will give employers the option to process and collect benefits in kind through the payroll. In these circumstances, there will be no need to complete P11Ds for these benefits.
An employer is required to notify HMRC in respect of relevant information for each employee. Benefits for NIC purposes must be included on the deductions working sheet column 1A ‘earnings on which employee’s contributions payable’. (This should not include Class 1A NIC benefits on company cars and car fuel). Comprehensive records should be kept in relation to all benefits and expenses payments.
There are several benefits that are not normally taxable. These can be substantial. The most significant are:
- Contributions to registered pension schemes
- Car, motor cycle or bicycle parking facilities at or near the workplace
- Certain childcare provision
- Compensation/termination payments up to £30,000
- Redundancy counselling services
- Staff canteen and dining facilities (provided they are available to all directors and employees)
- Sports facilities (provided they are available to all directors and employees)
- Removal expenses, subject to HMRC limits
- Long-service awards (provided they are an established practice within the firm or are in the employees’ contract) up to specified limits
- Awards under suggestion schemes (but there are restrictions)
- Use of a pooled car
- Use of a mobile telephone, including smartphones such as iphones and Blackberrys
- The provision of representative accommodation (except for certain directors)
- Approved profit sharing and share option schemes
- The provision of eye care tests and/or corrective glasses for using computer monitors
- Employer-provided cycles and cyclist’s safety equipment used mainly for journeys between home and work
- Certain bus services for journeys between home and work
You could also consider establishing a company pension scheme, which allows your employees to make additional provision for their retirement by paying regular amounts and additional voluntary contributions.
Small interest free loans
No tax is payable on ‘cheap’ or interest free loans to employees of up to £10,000.
Tax efficient benefits can assist your company’s profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.
Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. Every employer operating PAYE schemes should obtain a copy of Employer Further Guide to PAYE and NICs (CWG2) – and should read it carefully.
When company cars are used for private motoring, the taxable benefit is normally calculated as a percentage of the list price. If an employee is also provided with fuel for private use in the car he or she is taxed on, the same percentage is applied to a standard value (Car fuel benefit charge multiplier) regardless of the value of the fuel used. NICs may be due on the fuel, depending on the method of purchase. Class 1A NICs must also be paid by the employer – and don’t forget that VAT is payable based on a flat rate charge for fuel provided for private use.
The maximum tax payable by an employee or director on a company ‘van’ is £1,417.50, plus up to £267.30 for fuel.
There is no charge for employees who have to take their van home and are not allowed other private use. There is also no charge for the use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee’s use is not wholly or mainly private.
Zero emission vans
The previously announced taper details have been amended. The level of the van benefit charge for zero-emissions vans will be held at 20% of the charge for conventionally fuelled vans for the tax years 2016-17 and 2017-18. This defers the planned increase to 40% to 2018-19. The van benefit charge for zero emission vans will be 60% of the van benefit for conventionally fuelled vans in 2019-20, 80% in 2020-21 and 90% in 2021-22. From 2022-23, there will be a single van benefit charge applying to all vans. There is no fuel benefit for such vans.
These also need to be disclosed. However, the employees then need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties.
Where an employee is not required to complete a tax return, form P87 should be used instead.
How to save yourself work
Most employers can obtain a dispensation in respect of certain expenses payments, which could avoid the need to complete P11Ds in some cases. From 6 April 2016 P11D dispensations will no longer be necessary. Where an employer has an existing agreement with HMRC to pay fixed rate expenses this can continue to so long as the agreement was made after 6 April 2011. Where no existing agreement is in place, a specific application to HMRC will be required.
From 6 April 2016 there is a cap of £50 per trivial benefit which:
- Must not be cash or a voucher that is exchangeable for cash
- Cannot be used in conjunction with any salary sacrifice arrangement or any other contractual obligation
- Must not be provided to the employee in connection with services performed.