Introduction to Income Tax and NICs Earnings
2.2
Benefits in kind
Included in the list above are ‘benefits in kind’ (also known as BiKs or just ‘benefits’ ). The following is an overview only as the treatment of benefits in kind is beyond the scope of this particular course.
2.2.1 What a benefit in kind is
There is no comprehensive definition of what is or counts as a ‘benefit in kind’. Generally, though, the provision of a benefit occurs when the employer provides goods or services to an employee, often by directly arranging the provision with a third party. Examples of benefits provided by the employer include company cars, medical insurance and Christmas gifts such as hampers. It is also possible for the employer to provide the benefit without using a third party, such as where the employer makes a loan at low or zero rates of interest to enable the employee to purchase a season ticket to commute to work, for example. Another possibility is that the employer gives vouchers (to buy goods from a retail store, for example) or tokens (to obtain access to a car park, for example). Such vouchers and tokens are often purchased from third parties but sometimes they are produced ‘in - house’. Again , these count as benefits.
2.2.2 Tax and NICs liability
Most benefits are subject to income tax and some are also subject to National Insurance contributions (NICs).
Income tax
Almost all benefits are treated as ‘earnings’ for income tax purposes. (There are some exemptions and exceptions, such as goods provided purely for business purposes.) The general rule is that the taxable amount (value) of the benefit is not included as ‘earnings’ through the payroll (unless the employer has registered with HM Revenue & Customs (HMRC) to process the value of the benefit through the payroll, known as payrolling the benefits). There are exceptions to this general rule (such as notional payments like ‘cash vouchers’) but for the purposes of this particular course, we will not treat the value of benefits as earnings. In order that the employee is taxed on the value of the benefit (if it has not been processed through the payroll), the employer has to calculate the value of the benefit each year and report details to HMRC on a ‘P11D Expenses and benefits’ form. The calculations and reporting requirements are beyond the scope of this course.
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