What are benefits in kind?
In this section, we look at how you pay tax on benefits in kind, also known as non-cash benefits, as an employee. We also explain some of the more common benefits in kind that you are likely to come across. In particular, we explain how you work out the taxable benefit.
Note that the rules we discuss at the beginning of this section relate to all employees from 6 April 2016. In a later section we cover the rules that applied before 6 April 2016 to employees earning £8,500 or more per year and directors.
If you think you earned less than £8,500 per year before 6 April 2016 and you received non-cash benefits from your employer, we suggest you also look at our section, ‘employment benefits and expenses’ for more information about your tax position.
If your employer provides you with a taxable benefit, such as use of a company car, the taxable benefit has to be valued. For most types of benefit in kind, the law sets out how you should work out the value. You pay tax on the taxable value of the benefit. ou can do this in one of two ways. Your employer can use the P11D method or, from 6 April 2016 can choose to use the payrolling method. You can read more about this in our section ‘How is my tax collected?’ but we summarise the position here.
If your employer is using the P11D method they should notify you of the value of the benefit by 6 July after the tax year end, on form P11D. So if you have a taxable benefit in the year to 5 April 2017, your employer should give you a form P11D by 6 July 2017.
The value on which you need to pay tax should then be included in your Pay As You Earn (PAYE) code. It reduces your personal allowance, which should then result in you paying the right tax by the end of the year. But there is sometimes a delay in HMRC receiving information about your benefits in kind, due to the way the P11D system works, so you might find you end up paying some catch-up tax on a benefit you received in an earlier tax year through a later year’s tax code.
It is important to contact HM Revenue & Customs (HMRC) if you think your PAYE code does not take into account benefits you are receiving from your employer, as it could mean you are not paying enough tax. You can find out more in our section ‘how do I check my coding notice?’.
Instead, from 6 April 2016, your employer may choose to use the payrolling method to collect tax due on benefits provided to you. Your employer must tell both you and HMRC before the start of the tax year (or before your first pay day if you start working for the employer part of the way through the tax year) that they are going to use this method, but they do not have to payroll all benefits provided to you. The tax due on payrolled benefits is collected from your pay each pay day so that at the end of the tax year you should have paid all of the tax due on those benefits. By 1 June following the end of the tax year (so by 1 June 2017 for the tax year 2016/17) your employer will tell you which benefits were payrolled and the value of those benefits.
If your employer allows you to use a car that he or the business owns or leases, often called a 'company car', and if you can use it privately as well as for business purposes, you usually have to pay tax on the value of the benefit.
The benefit to you is based on:
- the list price of the car and any accessories;
- the vehicle's carbon dioxide emissions;
- the type of fuel the car uses; and
- the date of registration of the car.
It is important to note that a car or van benefit applies even where there are no carbon dioxide emissions, for example the car is propelled solely by electricity.
There are additional exemptions and alterations to the calculations if you are disabled and meet certain rules.
HMRC have a calculator for working out car and fuel benefit. You can find the calculator on the GOV.UK website.
If you are provided with free fuel for a company car that you can use privately, you can use HMRC's calculator to work out your fuel benefit. You can find the calculator on the GOV.UK website.
There is no taxable fuel benefit, if your employer only pays for fuel for business purposes.
Note that fuel for these purposes does not include electricity; there is no benefit associated with electricity provided to charge your company car.
Your employer may allow you to use a company van. If you use the van mainly for work purposes, you will only pay tax if you use it for private journeys other than journeys between home and work.
There is no taxable benefit if the van is propelled solely by electricity.
When is there no tax to pay on company vans?
You have no tax to pay if you only use the company van to make business journeys in connection with your job – the only journeys you make in it are work journeys and travelling between home and work.
The onus is on your employer to demonstrate to HMRC that you have no tax to pay. To assist your employer in this you may need to keep your own records of the mileage, date and purpose of journeys.
When might there be tax to pay?
You will have to pay tax on the benefit of the company van if you make private journeys, unless there is only minor private use – that is using the van for a private purpose maybe only once or twice a year. Such use is usually considered insignificant and you should not have to pay any tax.
Where you do have to pay tax on private use of the van, the amount of benefit that will be included in your PAYE coding notice for 2016/17 is £3,170, assuming your employer has not chosen to payroll this benefit.
If you pay tax at the basic rate, this will work out as a tax bill of £634 (20% x £3,170).
The above figures are reduced in some situations, for example:
- if you do not have use of the van for the whole tax year;
- where someone else also uses the van for private travel;
- where you pay your employer towards any private use.
Do I have to pay tax on fuel provided by my employer for the company van?
If your employer supplies you with free or subsidised fuel for private use (except electricity), you have to pay tax on the benefit.
For 2016/17, the taxable benefit is £598. If you are a basic rate taxpayer, you will pay an extra £119.60 tax for the year (£598 x 20%).
If a house, flat or any property owned or rented by your employer is made available for your use, there is a taxable benefit, unless the accommodation is job-related – see our page 'what payments and benefits are non-taxable?' for more details.
The following rules apply to all employees no matter what the level of your earnings. The taxable benefit is the higher of:
- the annual value of the property – the letting value of the property, or the rent that might reasonably be expected to be obtained; and
- the rent your employer pays, if the property is rented.
You can deduct any amount you make good to the employer from this value.
Where the employer pays the council tax or water rates, such payments will count as wages for both tax and National Insurance contributions (NIC).
Where the employer owns the accommodation, if the living accommodation cost more than £75,000 there is an increased charge in addition to the basic taxable benefit. This is worked out as:
(Cost less £75,000 x appropriate %) less the excess of rent paid over the letting value
The living accommodation benefit is reduced:
- where the property is used for only part of the year; or
- if the property has part which is used only for business, the benefit can be reduced proportionately.
If more than one employee uses the accommodation the total benefit is the amount that would be charged to a single employee, and the benefit is shared equally between the employees.
If the employer pays any household bills on behalf of the employee, for example, gas, electricity, and telephone bills, this will give rise to an additional and separate benefit.
A voucher is any document such as a ticket that you can exchange for goods or services.
If the voucher is for cash or can easily be converted into cash – such as stocks and shares – it is treated as pay and taxed under PAYE.
For any other non-cash vouchers, the benefit is the amount your employer paid for it.
There are a number of exempt non-cash vouchers and these include childcare vouchers up to certain limits or transport vouchers such as those to obtain a car parking space at or near the workplace.
If you are allowed to use a credit card provided by your employer, your taxable benefit is the amount paid by your employer for any goods or services you buy on that card, unless these are purely for business purposes and you have your employer’s authority for the purchase on their behalf. [Or if the use of the card took place before 6 April 2016 and you also earned income at a rate of less than £8,500 per year.]
Your employer might pay for you to have private medical cover. This is usually via a group plan organised by your employer. The benefit on which you pay tax is the cost to the employer for the cover you receive. In certain circumstances, from 1 January 2015 your employer may pay up to £500 for you to receive private medical treatment without that being a taxable benefit to you provided that certain conditions are satisfied.
Your employer might give you a loan, for example to help you pay for a season ticket for your commute to work. Your employer may do so at a cheap rate of interest, or interest free. If this applies to you, there may be a taxable benefit if the amount of the loan exceeds £10,000 in the tax year. This is worked out based upon an assumed interest charge at the official rate of interest less any interest you have paid. The official rate is generally fairly close to that charged by banks and building societies. You can find the official rate of interest on the GOV.UK website.
If the loan is subsequently written off – that is, your employer decides they do not want you to pay the money back – the taxable benefit, in other words the amount you pay tax on, will be the amount written off.
If an employer provides you with one mobile phone and pays all the bills including line rental and private calls this is exempt from both tax and NIC.
If you have your own mobile phone contract but your employer agrees to pay the bills or if the costs are reimbursed by your employer, you are liable to both tax and NIC. You may be able to claim tax relief for business use.
Where the employer pays your home telephone bills, you are taxed on the payment unless the private use of the phone is insignificant. The amount of the benefit is the total payment less any business calls, but not any part of the line rental. You are liable to NIC on the amount paid by the employer for both line rental and private calls.
If the contract for your home phone is between the telephone line provider and your employer then the benefit to you is the cost of line rental and calls less any business calls and any amount made good by you to your employer.
If however there is a definite need for a telephone to be provided and the employer ensures that private calls are minimal, it is possible you will not be charged for either the line rental or calls where the private use is minimal compared with the overall cost.
If your employer contracts directly with a supplier to provide you with broadband in your home purely for business, and your private use is minimal, then provided the package cost is not affected by private use, you do not have a taxable benefit.
To work out the taxable value of an asset your employer loans to you for your private use, you take 20% of the value of the asset at the time it was first given to you to use.
However, there is generally no taxable benefit on the use of cycles and cycle safety equipment or on the use of a commercial vehicle, more than 3.5 tonnes weight, including any fuel, unless the main use of the vehicle is for private purposes.
If your employer decides to give you a second-hand asset, the taxable benefit is the higher of:
- the market value at the date you were given the asset; and
- the original market value
less any amounts that have already been taxed on the previous user or users, for example, if you have already used the asset on a loan basis.
The taxable benefit in these cases is just the extra cost to the employer of providing you with the benefit. So if you work for a footwear manufacturer and you get free shoes, the benefit is the cost of the materials and manufacturing costs of the shoes.
If however you worked for a train company and you got free travel on their trains, there is no additional cost to the employer in providing the benefit, as the trains run anyway, so it is tax free.
A new tax-free childcare scheme is due to be introduced during 2016/17 tax year. Once details of this are finalised, information will be placed in the 'News' section of this website. The information below all relates to existing arrangements.
If your employer, either alone or with other employers or local authorities, provides a workplace nursery, then there is no taxable benefit. Where the provision is joint, each employer needs to be responsible for a part of the management of the scheme.
The exemption also applies if you are allowed to use the workplace nursery of another employer, when you are working at their premises.
Your employer pays a nursery for your childcare or gives you childcare vouchers
If your employer provides 'qualifying childcare' – either by paying a nursery direct for your childcare costs or by providing you with vouchers – this can be exempt from tax and NIC up to a limited amount.
The maximum limit is £55 per week, but this can be a lower amount if you are a higher rate or additional rate taxpayer and joined a voucher scheme, or your employer first started paying for your childcare, after 5 April 2011. You pay tax and NIC on the excess childcare costs over the maximum limit applicable to you.
If your employer provides you with cash to cover your childcare expenses, this is not exempt. It is taxed as any other monetary wages, under PAYE.
The rules as to how childcare schemes operate are quite complex. To qualify the scheme must be registered or approved childcare and it must be made available to all employees. The child must be the employee's own child or a child for whom the employee has responsibility.
When deciding whether or not to take up childcare vouchers offered by your employer, you also need to check the impact on your tax credits claim.
On the GOV.UK website, you can use the A to Z list of expenses and benefits to see the tax and NIC treatment of any benefits your employer gives you.
For information on non-taxable benefits, visit our section ‘what payments and benefits are non-taxable?’.
For information on employment expenses visit our section what if I incur expenses in relation to my job?’.
If you use your own car for business purposes, visit our section ‘what if I use my own car for business purposes?’.
There is a quick guide to employment benefits on the GOV.UK website.