Common benefits in Kind
If you have a PAYE scheme you must complete form P11D(b) and notify HM Revenue & Customs whether or not any benefits have been provided to your employees in addition to their normal wages. The definition of employee includes all directors.
The forms must be submitted to HM Revenue & Customs by the 6th July in order to avoid penalties. If benefits have been provided, Class 1a National Insurance will be charged at 12.8% on the benefit value and this must be paid to HM Revenue & Customs by 19th July using the payslip that they will send to you separately.
The most common benefits in kind and the main points to be considered are as follows, although the list is by no means exhaustive and any private bills settled by the business or anything paid for by the business and used privately by the employee should be declared:
Cars – owned and leased. If a car is owned by the business and made available to an employee it must be declared as a benefit in kind, even if only used for work journeys and travel to and from home. The benefit value is a percentage of the original list price of the vehicle (not the purchase price!) and the percentage to apply is based upon the CO2 emissions.
If the vehicles are leased, these are still treated as ‘owned’ by the business and a benefit in kind should still be declared.
If any fuel is paid for by the business, this must be declared in addition to the car benefit and is calculated by application of the percentage used for the car benefit to a fixed sum, which to 5th April 2010 is £16,900.
Company Vans: If a van is owned by the business and provided to an employee a benefit value of £3,000 must be declared. If fuel is paid for by the business, a fuel benefit must be declared in addition to this and is a fixed benefit value of £500.
Mobile Phones. If the employer takes out the contract and owns the mobile phone it can be provided to the employee as a tax free benefit in kind. Only one phone can be provided per employee to retain the tax free benefit status.
If the employee owns the phone but it is used purely for business calls, again no benefit arises if the calls are settled by the employer. Any private calls paid for give rise to a chargeable benefit.
If the phone is owned by the employee and the employer pays the rent or service charge, again this would be a taxable benefit if any private calls are made from the phone.
Directors accounts/Loans: If a loan is made to an employee and it exceeds £5,000 this must be declared as benefit in kind unless a market rate interest has been charged. If interest is charged at less than market rate, the benefit value will be the difference between the two.
If the directors account is overdrawn and the balance exceeds £5,000 at any time in the year (not just the balance at the end of the period) a loan benefit must be calculated for the whole period.
Business assets used by an employee: If an asset owned/leased by a business, such as a yacht or a company owned villa, is provided to an employee for their own private use, a benefit in kind will be incurred. The benefit value will be 20% of the market value of the asset immediately before it was first made available.
The benefit in kind charges for assets placed at an employee’s disposal can be extensive as the requirement to declare a benefit is based upon ‘availability’ of the benefit rather than actual use. For example, if the employee/director can use of the yacht at any time during the year, assuming it is not already in use, the benefit will be calculated on the full years market value and not just the 2 weeks the asset was actually used for.
Subscriptions: The most common subscription will be medical/health insurance which, if paid for by the business, is a benefit in kind and should be declared on the P11D(b) accordingly.
Other common taxable benefits include the business paying for golf membership or gym membership on the employees behalf. Even if business is conducted on a regular basis at the golf club and it seems necessary for the employee to attend, HM Revenue & Customs see a dual purpose in the subscription as its purpose is not exclusive to running your business and a benefit in kind will therefore be incurred.
For further information and if you have any queries related to benefits provided or completing your P11D(b) Employers Return of Benefits in Kind, please contact Janice@a4gsolutions.co.uk