Benefits in kind
Benefits in kind are sometimes provided by the employer in addition to the employee's salary. They are often taxable benefits and must be reported annually as part of employee's gross earnings.
Who pays the tax?
Benefits in kind offer a good example of why it is important to agree a gross wage with your employee. In almost all other types of employment the employee is always responsible for paying the tax on benefits. But as many domestic staff have net pay arrangements it means that you, the employer, are responsible for paying this tax, which can potentially be a very expensive experience.
Tax on benefits in kind is payable in arrears and is not reported until July following the end of the tax year. Sometimes it can take up to two years before payments are claimed by HMRC, and during the interim your employee can have moved from one job to another, leaving the new employer responsible for paying what can in some cases be a very large sum of money. If your employee is on a gross wage, however, then the tax is deduced from their gross income at their current rate of tax.
In addition to tax there may also be a Class 1A NI charge of 12.8% of the value of the benefit to be paid - the employer always pays this charge.
Examples of taxable benefits
- Health Club Membership
- Interest Free Loan
NB: PLEASE NOTE THAT THIS LIST IS NOT EXHAUSTIVE.
Mobile phones are not considered a taxable benefit
Use of Car
The use of a car is not considered a taxable benefit if your employee only uses it during working hours. If however your employee is permitted to take the car home and use it as a means to get to and from work, then it must be reported as a benefit in kind.
If accommodation is provided for the employee and it has a separate front door and separate metering for gas, water and electricity, it is considered a taxable benefit and must be reported as such.
Please note that the information and examples contained on this page are to be used as guidelines only. If you have specific questions please contact Stafftax.
An example: a net wage agreement can be costly
By agreeing a net wage with your employee you are effectively agreeing to pay all their taxes, irrespective of their tax code or tax position.Read more ...
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