What is a taxable benefit-in-kind?

If you are an employer and provide any benefits to employees or directors, you might need to tell HM Revenue and Customs (HMRC) and pay tax and national insurance contributions (NIC) on the value of the benefits you provide. 

The complete list of what would constitute a benefit would be extremely long but, generally, a benefit in kind is anything that you provide for your employees which is not included in their salary or wages. 

There are more commonly known benefits, such as providing an employee with a company car or with private medical insurance, but are you aware of the less obvious benefits in kind and the correct tax treatment of these? 

We have listed below some of the common benefits that we often see missed or misunderstood:

• Mobile phones
• Gifts to an employee
• Staff entertaining
• Long-service awards
• Directors’ personal tax return fees and directors’ loans

Mobile Phones

If an employer provides an employee with one mobile phone for business and personal use, there are no tax implications, and this does not need to be reported. 

If you provide more than one phone to an employee, one of the phones is exempt but the second phone will be a taxable benefit and will need to be reported on a P11D. 

It is also important to watch who the mobile phone contract is with, as the exemption only applies if the phone contract is in the name of the employer.

Where the contract is in the name of the employee, there will be reporting requirements to consider depending on the type of phone contract (pay as you go or contract) and how you are making the payment (either directly to the supplier or by way of reimbursement). The latter will also impact on the national insurance that is payable.    

Gifts to an Employee

Any gift to an employee has the potential to be a taxable benefit whether this is a hamper at Christmas or a bunch of flowers for a birthday.

These gifts may be covered by the trivial benefits exemption provided certain conditions are met (please see a link to our blog detailing some available exemptions below). 

However, any gifts over the value of £50 (maximum of £300 a year for Directors) or gifts provided as a reward for the employees work or performance, will be a taxable benefit. Non-cash gifts should be reported on a P11D or a PAYE Settlement Agreement (PSA) and cash gifts should be included as earnings via payroll. 

Staff Entertaining

As per our exemptions blog, there is an exemption for staff entertaining up to £150 per head.

However, are you aware that this only relates to annual events, such as a summer party or Christmas party?

If you take your team out for drinks after work or buy them all lunch, this is a taxable benefit that needs to be reported to HM Revenue & Customs.

Again, these benefits could be exempt under the trivial benefit rules but only if they meet the relevant conditions.

Long Service Awards

You may wish to reward your employees for their service to the organisation, but you may not realise that this could give rise to a taxable benefit on the employee.

There is an exemption available where certain conditions are met, and the employee has worked for you for at least 20 years (again more details on these conditions can be found in our exemption blog).

However, where you give an award to an employee who does not meet these conditions, these rewards will be taxable benefits. 

Non-cash awards will need to be reported on a P11D and cash awards are taxed as earnings through the payroll.

Directors’ Personal Tax Return Fees & Director’s Loan Account 

It is not uncommon for companies to cover the cost of preparing directors’ self-assessment tax returns.  This is the company settling an employee’s personal bill and is regarded as a taxable benefit in kind.  How this is taxed will depend on whether the bill is paid directly by the company or reimbursed.

Rather than realising a taxable benefit, the fees could be included in a director’s loan account; however, it is important to note that if a loan account is overdrawn and no interest is charged, this is a beneficial loan.  If a beneficial loan is more than £10,000 at any point in the tax year and interest is not charged on the balance, this will be a taxable benefit in kind on the director. 

This is generally calculated as the average loan balance for the year at HMRC's official rate of interest, currently 2.25%, and would need to be included on a P11D.

Other benefits

The above is not an exhaustive list of the types of taxable benefit that can arise, but is an example of what we see most often in practice.

There are still many ways to reward your employees without a taxable benefit arising, and you can find more information about the exemptions in our separate article.  

Further information

If you have any queries or require our assistance in reviewing the benefits you provide to your employees, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team. 

For more information on employer issues check out our Employer Solutions Knowledge Hub.