You have a lot of responsibilities when you set up your own limited company, but you also become entitled to many benefits, some of which are not even cash-related. An example is benefits in kind, which both limited company directors and employees can receive from their employer.
Benefits in kind is a broad term that can include a range of perks and some are taxable while others aren’t. Because we’re contractor accountants, we can help you figure out the benefits you can receive as the director of a company as well as the taxes you must pay, so take a look.
What Are Benefits in Kind?
So, what exactly are these benefits? The term refers to perks given by the company that can have a financial value but that are not paid in cash form. They’re popular because they can be used by employers as a way to attract talent, since they can help create good salary packages. If you’re thinking of setting up a limited company, you can also gift them to yourself as an employee of the business.
As mentioned, some benefits are taxable, which means you must declare them to HMRC in the correct manner.
Some Examples of Benefits in Kind
Limited company directors can offer a wide range of perks to their employees, including themselves, and some of the most common benefits that can be taxed include:
- Company cars
- Private healthcare
- Fuel for non-business uses
- Living accommodation provided by the employer
- Non-business entertainment and travel expenses
- Assets that have personal use on top of business use
You may also be able to get tax relief on electric vehicles so, if you’re looking to purchase a company car, now is probably the right time for your business. This is because company vehicles are put in different classes according to their fuel/energy type and CO2 rating, and electric vehicles will only pay 1% of benefit in kind tax for the current tax year of 2021/22. For 2022/23, this tax will rise to 2%.
It’s important that you speak to an expert accountant to make sure that you’re paying taxes on the right benefits, since there are many rules surrounding these perks.
For example, some of the perks that don’t require you to pay tax include:
- Safety clothes
- Mobile phone contracts between the company and the provider
- Work training and development
- Employer payments to pension schemes
- Staff canteen
- Medical check-ups and eye tests
How Can You Pay Tax on Benefits in Kind?
As an employee of your company, you’ll have to report the benefits you receive, and you must determine the value of the benefit in order to do so, which corresponds to the cash equivalent. You then apply your income tax rate on the value. For example, if you’re on a high tax rate, you pay 40% of the value of the benefit as tax.
When you provide a benefit in kind to an employee, even if it’s to yourself, you must also pay Employer’s National Insurance Contributions at a rate of 13.8%. The Class 1A National Insurance paid is an expense to the company and allowable for corporate tax relief.
To pay taxes on the benefits in kind you provide to your employees, including yourself as an employee of your company, you have to file a P11D form to HMRC. You must do this by 6 July following the end of the tax year. For instance, if you provide perks in the tax year of 2021/22, you’ll have to report them by 6 July 2022.
Alongside this form is the P11D(b) document, which must be sent at the same time and allows you to pay Employer’s National Insurance Contributions on the benefits. Employees will have the tax applied automatically via payroll or reported on their self-assessment.
Your forms don’t need to include certain things that are considered business expenses, since that’s a separate matter. For example, you don’t need to add office supplies and materials. Once more, if you’re unsure whether you add something or leave it out, we can help. We work with contractors from all sectors, so we understand the demands of your industry.
What About Penalties?
Filing your P11D and P11D(b) forms late – or not submitting them at all – will incur penalties, so it’s crucial you make sure they’re sent to HMRC on time and with the correct information. According to HMRC, you have a two-week buffer in place but, after this, you’ll pay £100 per 50 employees for each month or part month your form is late.
If you have incorrect information on the return – whether on purpose or by accident, you’ll incur a maximum of £3,000 penalty for each form. This is why it’s important to speak to an accountant before submitting your forms.
Because many benefits in kind require you to pay taxes on them, it’s critical that you get it right to avoid problems from HMRC. Like other UK tax issues, this can be a complex matter, so don’t hesitate to seek professional help if necessary.
As limited company accountants, we have many years of experience helping contractors maximise their profits and pay their taxes on time, so we can help. Speak to us today on 0330 107 9676 for more information and we’ll be happy to advise you further.
