Reporting benefits in kind to the Income Tax Division
Benefits in kind cover a wide variety of benefits and it is important to ensure that the treatment of each specific benefit is applied correctly. Mistakes can and have been made when dealing with and reporting benefits in kind to the Income Tax Division.
This is more important now, as penalties can be applied in respect of benefits not reported correctly or by the due date. It is advisable for employers and their tax advisors to review the assets, personal liabilities and services provided to their employees, in order to ensure that all benefits are correctly reported on time to avoid the imposition of any penalties.
If it is unclear whether a benefit should be reported or not, please contact the Income Tax Division for guidance on +44 1624 685400.
Below are some examples of common mistakes made with regard to the reporting of benefits and expenses:
- When a company puts livery on a vehicle to advertise their business, and the vehicle is made available to employees for private use, a benefit in kind charge will arise as the livery on the vehicle does not alter the fact that the vehicle is available to the employee for private use.
- Double cab pick-ups are viewed as chargeable vehicles by the Income Tax Division because the additional row of seats in the vehicle means that they are not primarily designed to carry goods, materials and tools, as in the case of vans.
- The same issue can occur with 4 x 4 vehicles and SUV’s. There is an assumption that if these vehicles are being used for business purposes, including in an off road capacity, that no benefit in kind charge is due. These vehicles are treated as chargeable by the Division in the same manner as double cab pick-ups on the basis that they are not primarily designed to carry goods, materials and tools.
- Vans are usually deemed to be exempt from benefit in kind as they are designed to carry goods materials and tools, rather than people, as in the case of ‘cars’. However, in cases where the van is not being used primarily to carry goods, materials and tools, and in essence is being used instead of a car, a T9 should be completed. As the vehicle is not considered a car, the van would be subject to a charge under 2H of the Income Tax Act 1970. (20% of the market value of the asset when first made available). An example of this would be where a bank employee is provided with a van and carries out no practical duties for the company (i.e. no requirement to carry goods, materials and tools on a day to day basis)
- A pool car is not a pool car if the vehicle is not left outside the business premises overnight and at weekends and the vehicle is not insured for or used by a number of different employees. Factors such as being unable to leave the car at the business premises due to vandalism, would not negate the employers responsibility to provide a form T9.
- Where an employer leases a company car and provides the vehicle to employees for personal use they sometimes fail to supply a form T9 on the basis that they do not own the car. This is incorrect, as the car remains an asset of the company and is subject to the normal benefit in kind charges, based on the cylinder capacity scale rates.
- A benefit in kind charge can be raised on an employee if the vehicle is simply made available for private use, irrespective of whether it is used or not. For example, a charge can be raised if a company car remains dormant on an employee’s driveway for a number of months. The mitigating factor is that the car, although not driven, is still available for the employee to use privately. The fact that the car is primarily used for business purposes is not relevant when determining a benefit in kind charge.
- Some T9 forms are not completed because the asset made available to employees has been left out of the company accounts. If a company asset is made available to an employee, then a benefit in kind charge is due. The company should include the asset within the accounts, claim the appropriate capital allowances/expenses and provide a completed form T9.
- Previously companies could make allowances for the provision of benefits, by including add backs within the company accounts. This approach was ended and from the 6 April 2006 (see Practice Note 122/06), the employer could elect either for the benefit in kind to be charged directly on the employee’s personal tax assessment or, they could meet the charge on the employee’s behalf at the higher rate of tax on the agreed value of the benefit.
- There is an exemption for the charging of a benefit in kind on employees who are provided with medical insurance. However, it should be noted that spouses and family members are not included in this exemption category and are therefore subject to benefit in kind charge.
- It is common for employers to fail to charge a benefit in kind for meals supplied to employees, particularly in cases where the food is provided before being classed as waste and put in the refuse. If an employer chooses to provide leftover food to an employee, then a benefit in kind charge may be due. From a benefit in kind perspective the food is classed as an asset of the business and even if it is classed as waste by the company, it still has a value.
- Benefits in kind for accommodation can be charged on an employee by virtue of their employment. The accommodation provided does not just have to be above the business premises or in accommodation owned by the business. An example of this is where the father of a restaurant owner provides free accommodation to the employees of his son’s restaurants in the block of flats he owns. The employee is being provided with a room and facilities based on the virtue of his employment with his son’s restaurant.
- In cases where accommodation is provided, employers should ensure that any associated benefits are correctly declared. Consideration should be given to such things as rates, insurance, utilities, garden maintenance, repairs and the cost of a domestic or servant.
- Benefit in kind forms are sometimes not submitted with the annual employers return form. From the 6 April 2010 a return may be considered as not being acceptable if the required T9 forms are not supplied with the annual employers return form. Penalties may also be charged and prosecution may be pursued until the return is submitted with all of the relevant forms, including forms T9.
Some employers confuse the payment of an allowance with a benefit in kind. All cash allowances and round sum payments should go through the payroll and should not be declared on a form T9. A list of some common allowances and payments are described below:
Common allowances and payments
- clothes allowance
- entertaining allowance
- fuel allowance
- lodging allowance
- meals allowance
- round sum subsistence payments
- standby payments
- tool money
- travel allowance
Employers should be aware of the distinction in the benefit in kind treatment of fuel. The Table below explains the correct treatment for both company and private vehicles:
|Company car and fuel card||Apply fuel charge per table R22 (b)|
|Company car and fuel account||Apply fuel charge per table R22 (b)|
|Company car and reimbursement for fuel||Apply fuel charge per table R22 (b)|
|Company car where fuel is provided to employee, but some of fuel expense is repaid to employer||Unless employee can provide evidence that all private fuel has been repaid in full, apply fuel charge per table R22 (b)|
|Company car where fuel is provided to employee but all fuel expenses are repaid to employer||If all fuel is repaid or if the employee can show that all private fuel has been repaid to company then no fuel charge should apply.|
|Company car and fuel allowance||Fuel allowances paid to employees should go through payroll and be subject to tax and national insurance|
Privately owned cars
|Pence per mile reimbursement for business mileage||As long as rates repaid are within those approved by the Isle of Man Government, the employee can be reimbursed directly for business mileage for their employer|
|Pence per mile reimbursement for business mileage using unapproved rates above those approved by Isle of Man Government||Reimbursements should be repaid through the payroll and subject to tax and national insurance|
|Fuel Card or Fuel Account||The employee should keep a record of both private and business miles during an appropriate tax year. The employer should complete a form T9 to indicate the total fuel provided to the employee and include details of the total mileage undertaken by the employee, plus the respective breakdown of the private and business miles within this figure. The Income Tax office will then calculate the private proportion of the fuel provided and charge it to tax accordingly. If the employee fails to keep a full record of private and business mileage during the tax year, then the office will look to charge the full amount of the fuel provided|
|Fuel allowance||Fuel allowances paid to employee’s should go through payroll and be subject to tax and national insurance|
|Cash towards fuel||Cash paid to an employee in respect of fuel should be included in the employee’s salary and subject to tax and national insurance|