What is a benefit in kind and when do I have to pay any associated tax by?

What is a benefit in kind and when do I have to pay any associated tax by?

We’ve recently been asked recently what a benefit in kind is and when any associated tax must be paid to HMRC by.

It is important to make your tax payments on time to avoid penalties and fines which can build up and become very costly. Failure to pay will result in HMRC taking increasingly severe actions to recover the taxes that are owed. 

A benefit in kind is an item that an employee or director receives from their employment but which is not included in their salary. Typical items would be company cars, fuel for company cars paid by the employer, private medical insurance paid for by the employer and cheap or free loans from the company to the employee or director.

If any of these benefits are relevant then you will need to calculate the benefit received by each employee and then prepare and submit a P11D form to HMRC for each employee that received a benefit. The deadline for submission is 6 July.

This is an annual requirement and the reporting period is in line with the tax year (eg 5/4/19-6/4/20).

The employee will be charged income tax on the benefit that they have received. This will usually be included within their tax code and the associated increase in income tax taken through PAYE.

The company must pay Class 1A NIC on the total benefit received by all employees at 13.8%. For example, should the total benefit be £10,000 then the Class 1A NIC will be £1,380. This is payable to HMRC by 22 July.

Payments should be made to:

Sort code – 08 32 10

Account number –  12001039

Account name – HMRC Cumbernauld

Your payment reference will be your 13 digit accounts reference number followed by the tax year and by 13. If your accounts reference number were 123456789 and you were submitting a return for the 1920 tax year then your payment reference would be 1234567892013.

All benefits are calculated differently. Many benefits are simple to calculate. For example, the amount that you pay for private health is simply the benefit for the employee.

However, car benefit is more complicated and the benefit is calculated using the list price of the car and a pre-set percentage that is linked to the fuel type and the CO2 emissions of the car.

Fuel benefit is calculated on a pre-set amount and then multiplied by the pre-set emissions percentage.

For loans, the amount of the loan is multiplied by an interest rate set by HMRC (currently 2.5%) to obtain the benefit. 

Calculating the benefit in kind and preparing and submitting the P11D form is a service that we offer to our clients. If you need help in this area and would like the pain of preparing and submitting the information to be taken away from you then please get in touch