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Essentially two tests must be applied in determining the tax implications of any benefit.
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.
All earnings 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.
Employers are required to notify HMRC 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.
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 in the performance of their employment.
A dispensation, granted by HMRC, 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 HMRC.
In general employees’ national insurance (NIC) is not due on benefits 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.
Certain benefits are not taxable. The most important ones are:
The following benefits are taxable on all employees:
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.
Please talk to us for further details on the application of the rules.
The taxation of employment benefits 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:
We would welcome the opportunity to assist you with any planning and compliance matters.
Contact us today to arrange a free initial meeting with John Galley to discuss your requirements.
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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