Exempt Benefits in Kind
You may have heard of companies rewarding employees through means other than merely their wage/salary. This may include a company car, accommodation provided by the employer at a subsidized value or providing loans at a beneficial interest rate (maybe even interest free!). These are termed benefits in kind (BIK) and are liable to Income Tax (paid by the employee) and Class 1A National Insurance (paid by the employer) except in certain circumstances. In this article, we will be exploring BIK which can be awarded by employers that are considered exempt, i.e. don’t attract Income Tax and National Insurance.
1] Advice related to pensions and pension-related taxes: Amidst the current cost of living crisis and the UK facing it’s highest tax burden in over 70 years, many individuals are seeking to identify ways in which they can reduce their tax burden but often fail to consult an expert such as accountants. Provided the cost per head doesn’t exceed £500 per tax year, employers can choose to bring in an accountant to assess their payroll affairs and offer robust pension planning advice to reduce both the employer’s and employee’s tax burden. It’s important to note, however, that this is an exemption and not an allowance and if the cost per head exceeds £500, the entire amount (including the initial £500) becomes taxable.
2] On-site sports facilities and childcare nursery: If you have the capacity to operate an on-site or nearby sports facilities or childcare nursery, the cost to you of enabling your employees to access these are deemed to be exempt. Parents who seek to work but are unable to find appropriate childcare may place an immense value on the latter if it’s operated to an appropriate level of care whilst on-site sports facilities can provide an effective way of unwinding following a day of work or an effective warm-up before the day starts.
3] 1 mobile phone and associated data costs: The first mobile phone provided to employees and its associated data costs are an exempt BIK regardless of the level of private use by the employee. This can be a priceless gift to employees who are regularly engaged in communications with third parties such as the company’s clients, suppliers, tax authorities such as HMRC or perhaps even regulators. They may seek to keep their personal and professional data separate which a company phone enables.
The guidance on BIK can get extremely sophisticated hence it’s best to seek the advice of a qualified accountant who will have a detailed look before you engage in any BIK scheme
4] Late night journeys and subsidized public transport or travel costs amidst distribution to public transport: Subject to multiple criteria being satisfied, it is possible for employers to arrange for taxis for their employees to return home from work. It must be noted here that this isn’t available where working till late isn’t irregular whilst ‘late’ is deemed by HMRC to be considered as working after 9 pm. If you contribute to your employees costs of public transport or arrange for alternative transport when public transport is disrupted, then, subject to certain conditions, it is possible for the cost of doing so to be tax exempt.
5] Relocation (aka Removal) Costs: If your employee is required to relocate perhaps because of a change in the location of your place of business then up to £8000 can be contributed by the employer. These are termed ‘qualifying costs’ and can include the cost of buying and selling a house, acquiring certain pieces of furniture or other equipment for a new house or simple relocation costs such as hiring a transport company. There are certain criteria which have to be met here as well before determining whether the exemption can be applied.
6] Non-cash long service award: If your employee has worked for your company, partnership or yourself as a proprietor for at least 20 years, you can reward them with a present worth at most £1000. The limit is capped at £50 per year hence for 20 years it’s £1000 (£50*20) and as such increases by £50 for each additional year worked. The award must not be cash or cash vouchers. So you may decide to gift them a watch, perfume or any other non-cash item provided it’s within the tax-free limit.
At Cheylesmore Chartered Accountants, we service clients with a host of BIK schemes ranging form dental plans, medical insurance to company vehicles. Our experience ideally positions us to understand the implications of BIK and provide advice on requirements such as filing a P11D with HMRC each tax year before 6th July following the end of the tax year in which the benefit was received.
