Benefit in Kind
A benefit in kind is a “payment” to an employee, office holder or connected person, but in a different form to salary or wages. It is a consideration which may be offered in lieu of cash.
According to the Income Tax legislation, a benefit in kind is a benefit provided by virtue of an individual's employment. This effectively means a benefit provided to somebody because they are an employee or office holder, or a person connected to the employee or office holder.
The rules for the charging of benefit in kind also extend to goods, services and gifts made available to family or household members of an employee or director. Family or household members can include an employee's spouse, children and their spouses, parents, dependents and guests.
Benefits in kind catagories
There are two categories of benefits that can be provided, each with their own rules for reporting purposes. Further details on these can be found in GN40 Benefit in Kind Guide.
1. General Benefits
The term general benefits applies to all benefits that are not subject to their own specific charging rules (i.e. cars and fuel.)
General benefits can include rights, privileges or services as well as assets. For example, a benefit in kind may be provided when an employer:
- provides an employee with free or below market value accommodation
- provides the employee with a gym or golf club membership
- provides entertainment by way of free tickets to concert
- provides for the private education or university fees of an employee’s child
- allows an employee to take free meals, food or drink from the business during the course of a day
- gifts an asset to an employee.
The benefit in kind rules will apply where the contract governing the payments – for example, a gym membership or school fees for an employee’s children – is between the employer and the supplier and the employer pays the supplier directly.
Where an employer meets the personal expenses of an employee – i.e. the contract is in the employee’s name – this amount should be reported on form T9 for tax purposes and included in payroll calculations for National Insurance Contributions (“NIC”) purposes. See GN40 Benefit in Kind Guide for further guidance on employers meeting the personal expenses of their employees.
Generally, the value of a benefit is the cost to the employer in providing that benefit, but there are specific rules for calculating the value of certain benefits. These will be covered in more detail in the section about the particular benefit.
If an employee contributes towards the cost of the benefit, there may be no cost to the employer at all.
If the employer deducts an employee’s contribution towards a benefit directly from their salary, it should be deducted from the employee’s net pay after deductions of Income Tax Instalment Payments (“ITIP”) and National Insurance Contributions (“NIC”). The payslip issued to the employee should reflect this position.
In no circumstances should the deduction for the contribution by the employee be made from gross pay prior to any required deductions of ITIP or NIC.
2. Company Car and Fuel Benefits
Any car or fuel benefits provided under sections 2I, 2J and 2K of the Income Tax Act 1970 should be included on form T9 and are subject to a benefit in kind charge. Reference should be made to the table in GN40 Benefit in Kind Guide – section 4.1 to determine the benefit in kind charge for a car and/or fuel.
Genuine business mileage reimbursed in line with the Government agreed rates shown in 5.2 will not be subject to a benefit in kind charge.
Exemptions to a benefit in kind
There are certain general benefits which are exempt from a benefit in kind charge by the Exemption Orders listed in section 1.3.2 of GN40 Benefit in Kind Guide.
Currently, the general benefits in kind listed below are specifically exempt from charge, subject to certain conditions and limits. Further information on these can be found in GN40 Benefit in Kind Guide.
- accommodation used solely for performing duties
- broadband connection, where personal computer also provided
- car parking
- childcare, to enable employees to attend work
- Christmas party expenses up to £100 per head
- commercial vehicles, such as vans or lorries
- COVID-19 testing
- cycle to work
- home computer and related expenses
- meals in a staff canteen
- medical insurance, dental insurance and health screening for employees
- mobile telephone, provided the contract is in the name of the employer
- public transport season tickets or multi-journey tickets provided by the employer
- reasonable relocation expenses
- retirement and death benefits
- sports and recreational facilities at an employee’s place of work
There is a further exemption that applies where the aggregate value of all the general benefits received in the year is £600 or less. Please note that this is an exemption and not an allowance. If the aggregate total of general benefits provided exceeds £600, the total value of the general benefits provided should be charged and reported in full on form T9. The exemption is based on £600 per employee, per employer and does not apply to car and fuel benefits.
An employer does not need to report exempt benefits on form T9, but full records of all benefits provided must be maintained.
See GN46: Employer’s Guide for full details of record keeping requirements. Sections 4 to 7 provide further information about the most common types of benefits provided by employers to their employees – cars and fuel, accommodation and meals - while section 8 provides details of other general benefits provided to employees.
Reporting reimbursed expenses
The legislation relating to the tax treatment of expenses is set out in section 2F of the Income Tax Act 1970.
This requires any payment of reimbursed business expenses made to an employee to be treated as remuneration attributable to their employment and to be subject to ITIP deductions.
However, if a dispensation (see below) has been granted by the Division, the employer will not be required to subject the reimbursement of agreed expenses to ITIP deductions or to report them on either form T9: Return of Expenses Payments and Benefits or form T14: ITIP and NI Deduction Card.
Further details are available in GN40 Benefit in Kind Guide
Getting a dispensation
A dispensation is a notice issued to an employer by the Income Tax Division that relieves the employer from the requirement to deduct ITIP from business expenses payments and from the requirement to report those payments on form T9.
It indicates that the Income Tax Division is satisfied that there are sufficient controls in place within the business to ensure that:
- business expenses claims are genuinely business in nature
- receipts are provided to back up expense claims made by employees
- employees do not profit from the reimbursement of out of pocket expenses
- directors do not sign off their own expenses
- there is third party checking of expenses paid for directly by a business to ensure that there are no private expenses, which would need to be repaid in full to the company to avoid a tax charge
- petty cash is monitored and controlled effectively by a business
An employee or director who authorises their own expenses will be excluded from a dispensation and any reimbursed expenses should be reported through payroll and subject to ITIP. The individual can make a claim for the actual expenses incurred on their annual personal income tax return. Please note that any genuine and distinct business expenses that can be clearly identified as such are not liable to NICs and can be excluded from the NIC calculations; however, where it is not possible to distinguish between business and non-business expenses, NICs will be due on the full amount.
Further details are available in GN40 Benefit in Kind Guide.
When to report a benefit in kind
An employer is required to:
- ensure that full and accurate records are maintained in respect of all benefits provided to employees (see Record Keeping Requirements below)
- complete a form T9 for every person who has a chargeable benefit in kind during a year
- complete a form T9 for every person who has received reimbursed expenses, where no dispensation has been agreed by the Income Tax Division
- provide one copy of this form to the employee concerned to submit with their personal income tax return
- submit a copy with the employers annual return (T37) on or before the due date of the return
- Employers are advised to retain one copy for their own records
What records you need to keep
Every employer must complete and retain all records and supporting documents required to enable them to submit a true, correct and complete return form, which includes the submission of a T9 for each employee who has been in receipt of benefits from their employer.
Employers should keep records of all benefits (including both chargeable and exempt) provided to employees, even if during the aggregation process the total value of benefits provided is below the £600 charging limit.
Supporting documents includes car log books, spreadsheets, invoices, receipts, dates and durations that cars were made available and travel diaries.
These records must be retained for three years after the end of the year to which the return relates and must be produced to the Income Tax Division upon request.
Failure to retain these documents or to produce them on request will result in a penalty of £250.
How to complete a benefit in kind form
Visit our page on how to complete the T9 Benefit in Kind forms.
Failure to report a T9
If an employer fails to supply all forms T9, accurately and correctly completed, with their employer’s annual return, the return can be deemed to be incomplete. The employer will then be subject to a late return penalty of £250, together with a further penalty of £50 per day for each day that the fully completed return form remains outstanding.
You could also be issued with a penalty of £250 for failure to retain records.
Employer's paying the tax charge for you
An employer can, by agreement, meet the tax charge arising from benefits they provide to their staff. The charge is calculated at the higher rate of tax on the benefit in kind value.