Benefit in Kind
In some tax jurisdictions, benefits in kind are referred to as fringe benefits. It is advisable that all employers and their agents familiarise themselves with the rules regarding benefits in kind to avoid any unnecessary penalties being charged for omitted benefits.
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.
There is an obligation to submit a T9 return of expenses payments and benefits form even where the individual receiving the benefit is not linked as an employee and therefore no T14 is submitted at the end of the year. In these cases the T9 form should be submitted together with those for the employees for which T14s are submitted.
Where no employer's role exists and benefits are provided, for example a company providing benefits to a company director, then a T9 should be submitted to the Income Tax Division marked 'no employer role exists'.
There are two categories of benefits that can be provided, each with their own rules for reporting purposes:
The term general benefits applies to all benefits that are not related to the provision of a company car and company car fuel.
General benefits can include rights, privileges or services. For example, a benefit in kind may be provided when an employer:
- provides an employee with free or below market value accommodation
- pays an employee’s gym or golf club membership
- provides entertainment by way of free tickets to concerts
- reimburses a personal expense incurred by an employee, such as school fees
- allows an employee to take free meals, food or drink from the business during the course of a day
There are certain benefits which are not chargeable by virtue of the Income Tax (Benefits In Kind) (Exemptions) Order 2007. This includes cases where the aggregate value of all the general benefits received is below £400. In these cases the Income Tax Division will not charge the benefits provided to tax.
Where an employee is provided with benefits in kind other than company cars and company car fuel (benefits assessable under section 2G of the Income Tax Act 1970) the benefits in kind should only be declared on a form T9 where the aggregate total of all general benefits exceeds £400. If the aggregate total is less than £400, then they need not be reported. Note that the aggregation is based on £400 per employee per employer.
Company Car and Fuel Benefits
Any car or fuel benefits provided under sections 2I, 2J and 2K of the Income Tax Act 1970 are not subject to the aggregation rules and reporting concession. Any benefits provided should be included on form T9 and subject to a benefit in kind charge.
Reference should be made to the appropriate table to determine the amount of benefit charge due. This is based on the car cylinder capacity only with effect from the 2009/2010 tax year and subsequent years.
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, which for the tax year 2010/2011 is 20%.
If an employer wishes to settle the tax on a benefit in kind, they should contact the Income Tax Division on +44 1624 685400.