Limited Company Benefits In Kind - FAQs
What are benefits in kind?
Benefits in kind (BIK) are specific benefits that an employee (including company directors) derives from a company.
Which items qualify as a benefit in kind?
HMRC set out a full list of items here - www.gov.uk/guidance/how-to-complete-forms-p11d-and-p11db
Typical items that are classified as BIK include;
- Company cars
- Private health insurance
- Personal accommodation
- Company phones with personal use
- Non-business travel expenses
- Non-business entertainment expenses
Some benefits don’t incur any tax. There are rules around each type of benefit and a range of circumstances which HMRC will take into account before deciding if an items qualifies as a BIK or not.
Which items may not qualify as a benefit in kind?
Some examples of expenses and benefits that may not qualify as BIK include;
- Meals provided to all employees at a workplace – the value of the meal must be ‘reasonable’
- Some travel costs, such as a company travel card or parking
- Business expenses paid for on a company credit card by an employee (provided the employee isn’t making a personal purchase)
- Business related accommodation (such as a hotel booking)
- Protective clothing
- Work related training
This list is not conclusive, if in doubt I recommend reviewing the guidance provided by HMRC or seeking the advice of an accountant.
How do I report benefits in kind as an employee or limited company director?
Benefits in kind are reported to HMRC by completing a P11D form.
P11D forms need to be submitted by 6th July following the end of the relevant tax year (6th April to 5th April).
Companies also complete form P11D(b), this form summarises the individual P11D forms the company has completed for its employees and how much Employers National Insurance will need to be paid on expenses and benefits provided.
A summary of benefits in kind will be included on an employees annual self-assessment tax return (if they are required to file a return).
How are benefits in kind taxed?
The calculation of tax payable will depend on the nature of the benefit (company car, private healthcare, etc.) and is based on the "taxable value" of the benefit provided.
For example, a company car may have a "taxable value" of 10% of its list price. Therefore, a company car costing £30,000 would have a value of £3,000 for the tax year to the employee. This £3,000 would be treated as £3,000 of additional income to the employee.
Income Tax (PAYE) is then payable on the value of this benefit.
Using the example above and assuming the employee is a basic rate taxpayer, 20% of £3,000 = £600 tax would be payable for the benefit derived from using the company car in a private capacity.
Companies may also be liable to pay Class 1A National Insurance on employee benefits in kind.
What is the best method for calculating the taxable value of a benefit in kind?
As the calculation will depend on the nature of the benefit in kind, I advise first reviewing the guidance provided by HMRC or seeking the advice of an accountant before making a tax calculation.
You can find a recent article here on calculating the benefit in kind on a company electric vehicle - www.matrix-accounts.com/blog-posts/tax-incentives-for-zero-and-low-emission-vehicles
Electric vehicles can derive tax benefits for a company as the benefit in kind payable is low (1% - 2% of the vehicles value typically) and in many scenarios the full cost of the vehicle can be deducted as a capital allowance or business expense. This can significantly reduce a companies corporation tax liability.
Any further advice?
Always consider if a benefit or expense could be classified by HMRC as benefit in kind (see full list above). If it could, then make a benefit in kind calculation to get an estimate of the tax payable on the benefit in kind.
In some situations, it may be more beneficial to pay for an expense personally than through a company.
If benefit in kind rules apply then make sure to complete a P11D by the deadline and apply all relevant HMRC rules. An accountant will be able to do this for you.