Introduction to Income Tax and NICs

Introduction to Income Tax and NICs Deductions

3.3.5 Deductions and benefits in kind

As mentioned earlier, benefits in kind (BiKs) are generally taxable on the employee. If the employee makes a contribution towards the costs of the benefit, then the amount so contributed can reduce the taxable value.

Example 1 An employer provides medical insurance for employees and their families. Under the employees’ contracts of employment, the employer is authorised to make deductions from their pay in order to receive this benefit. The total amount deducted in the tax year reduces the taxable amount of the benefit.

Note that a deduction from pay to contribute towards the cost of a benefit is made after PAYE income tax and NICs are calculated.

3.4

Abbreviations

AEO

–

Attachment of Earnings Order

AVC

–

Additional Voluntary Contribution

BiK

–

Benefit in Kind

ERA

–

Employment Rights Act 1996

HMRC

–

HM Revenue & Customs

NICs

–

National Insurance contributions

NPA

–

Net Pay Arrangement

PAYE

–

Pay As You Earn (income tax)

RAS

–

Relief At Source

SIP

–

Share Incentive Plan

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