Benefits in kind are benefits that employees or directors may receive from their company which aren’t included in their normal salary or wages. They can also be termed as ‘perks’ or ‘fringe benefits’.
Relevant benefits in kind have to be reported to the HMRC via form P11D by the 6th July and there are penalties for late filing, so you really do need to act now or face the consequences.
You may have noticed that the word ‘relevant’ is used. This is because not all benefits in kind are treated the same way by the tax system, as some benefits are taxed and others aren’t, so it can be an absolute minefield to navigate.
So what exactly is a benefit in kind?
Remember the ‘perks/fringe benefits’? Well, when you receive anything from your company which benefits you personally, and isn’t ‘wholly and exclusively and necessary’ for the purposes of your business, it is likely you’ve received a benefit in kind. There are a wide range of benefits in kind that are taxable – from company cars, interest-free loans, private healthcare to director’s loan accounts that may need reporting to the taxman.
Some benefits don’t incur any tax. (Certain costs of travel or some business expenses for example) However, there are complex rules around each type of benefit and a range of circumstances which HMRC will take in to account before deciding if you have to pay tax or not.
Director’s loan accounts
If your director’s loan account is overdrawn by more than £10,000 at any point in time during the tax year, HMRC will expect interest to be paid on the total overdrawn amount. This should be charged at the HMRC published rate of interest for the applicable tax year, and will need to be paid by the relevant director. As the overdrawn amount is effectively a loan from the business to the director it is treated as an employee-related benefit and must be included on the relevant director’s P11D form.
How do you report a benefit in kind?
Benefits in kind are usually* reported using a P11D form. As the benefit effectively increases an employee’s salary, there may be National Insurance Contributions to be paid on them. These contributions have to be paid by the company, not the employee. It is a statutory requirement for companies to operate a system for validating employee expense claims and is therefore important to keep all receipts and complete expense forms.
*some different reporting rules apply if you use the HMRC payrolling benefits and expenses online service
Who needs to file a P11D?
A separate P11D form must be completed for each individual employee who has received a benefit in kind, and are filed by the employer, not the employee – although, for many freelancers and contractors, they are one and the same.
If you need any help negotiating this tricky subject, get in touch with one of our expert accountants to discuss your specific situation.
This post was written by Daisy Vowles