Employment
issues (tax)
Benefits
in Kind
Today
the remuneration of many directors and employees comprises
a package of salary and benefits.
Essentially two tests must be applied in determining the tax
implications of any benefit.
- Is
the benefit taxable?
- If
the benefit is taxable, what is its taxable value?
In
this factsheet, we give guidance on some of the main benefit
in kind rules and indicate some common types of benefits.
It is not intended to be an exhaustive guide and any decisions
should be supported by professional advice appropriate to
your personal circumstances.
Setting
the Scene
All
emoluments of an office or employment are taxable. Where
they are not in cash it becomes necessary to put a value on
them.
As a general rule unless the benefit can be converted into
cash there is no taxable benefit. Where it is convertible
into cash the taxable amount is the resale value.
To prevent avoidance, additional legislation charges certain
other benefits to tax. The detailed rules are complex.
We can advise on structuring remuneration packages, including
benefits, in a tax efficient way.
Reporting
Employers
are required to notify the Revenue of benefits provided to
directors and most employees by completing forms P11D annually.
Penalties can apply where the forms are submitted late or
are incorrect.
The full amount of any benefit or reimbursed expense must
be reported on this form. However, where the reimbursed
amounts represent genuine business expenses a claim can be
submitted by the taxpayer on his or her tax return, (or in
writing to the Revenue if they do not receive a tax return)
thus resulting in a nil liability.
Dispensations
Many
expense payments do not involve a tax liability as a corresponding
claim is made by the employee for amounts expended wholly,
exclusively and necessarily for business purposes.
A dispensation, granted by the Revenue, allows certain expenses
to be ignored when completing P11Ds. Commonly, a dispensation
covers travelling and subsistence expenses and routine entertaining.
Correspondingly, the employee cannot make an expenses claim
to the Revenue.
National
Insurance
In
general employees' national insurance (NIC) is not due on
benefits in kind except vouchers, stocks and shares, the discharge
of an employee's personal liability and benefits provided
by way of 'readily convertible' assets.
Most benefits in kind are subject to Class 1A NIC payable
by the employer. As this amounts to 12.8% of the taxable
value of the benefit, you always need to consider the tax
efficiency of providing benefits.
Please consult us for advice.
Non-taxable
Benefits
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Certain
benefits are not taxable. The most important ones are:
- retirement
benefits which are paid by an employer into an approved
pension scheme
- meals
provided in a staff canteen
- drinks
and light refreshments at work
- parking
provided at or near an employee’s place of work
- workplace
nursery places provided for the children of employees
- in-house
sports facilities
- personal
use of employer provided computer equipment at home
(up to certain limits)
- payments
for additional household costs incurred by an employee
who works at home
- removal
and relocation expenses up to a maximum of £8,000
per move
- mobile
phones.
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Taxable
Benefits
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The
following benefits are taxable on all employees:
- any
living accommodation provided, unless job related
- vouchers
- credit
tokens.
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In
addition, special rules apply to tax other benefits received
by directors and all but the lowest paid employees. Common
types of benefits provided are detailed below.
- Company
cars - this is probably the most common benefit and
the taxable amount will generally be based on a range of
15% - 35% of the manufacturer’s list price (including
accessories) of the car. The taxable benefit depends upon
the carbon dioxide emissions of the car.
There are reductions for unavailability of the car and where
the employee makes a contribution towards the cost of the
car.
Please talk to us for further details on the application
of the rules.
- Private
fuel - a separate charge applies where private fuel
is provided for a company car, unless the employee reimburses
the employer for all private mileage (including travel between
home and work). From 6 April 2003 the charges are determined
by reference to the percentage applying to the company car.
A set figure (currently £14,400) is multiplied by
this percentage to determine the taxable benefit.
- Cheap
or interest free loans - no benefit will be taxed where
the loan does not exceed £5,000.
- Medical
insurance - the cost of providing medical insurance
is a taxable benefit.
- Use
of company assets - an annual benefit is taxed where
employees have the private use of company assets. The annual
benefit amounts to 20% of the asset’s market value
when first made available to any employee. Insignificant
private use of certain assets is not taxable.
- Telephones
- private home telephone bills, including rental charges,
which are paid for by the employer will be taxed as a benefit.
There is no charge for private calls using a company mobile
phone.
- Social
functions for employees - the Revenue will not tax as
a benefit a Christmas party and other annual functions provided
the total cost of the events in a tax year is less than
£150 per head.
- Childcare
– employees are exempt from both tax and NICs where
an employer provides a place in a workplace nursery. In
addition childcare vouchers and childcare arranged by the
employer are specifically exempt from NICs. New measures
taking effect in April 2005 include:
- a
new tax exemption to cover any formal registered childcare
or approved home childcare contracted by the employer
such as a local nursery, out-of-school club or childminder
- a
tax exemption for childcare vouchers
- a
rule that where schemes operate they should be open
to all employees.
The
new exemption covers the first £50 per week and applies
for both tax and NIC purposes.
How
We Can Help
The
taxation of benefits in kind is a complex area. Ensuring that
you comply with all the administrative obligations and plan
in advance to minimise tax liabilities is essential. We can
help you with the following:
- reviewing
existing employees' remuneration packages for tax efficiency
- planning
flexible and tax efficient remuneration packages for key
employees within your organisation
- advising
on systems for reimbursing expenses and applying for dispensations
- providing
advice and assistance with the completion of your PAYE returns
- negotiating
with the Revenue if disagreements arise and in reaching
settlements.
We
would welcome the opportunity to assist you with any planning
and compliance matters.
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of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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