HMRC Benefits in Kind

Understand HMRC benefits in kind, what counts as a taxable benefit (along with examples) and exemptions available for certain types of expenses that can be provided tax-free.

Updated 29 June 2021

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

1. What is a Benefit in Kind?

A benefit in kind is defined by HMRC as a non-cash ‘perk’ provided by a registered employer to an employee. Where benefits in kind have been provided, employers need to report the value and type of perk given using a P11d form and P11d(b) form.

2. Examples of HMRC Benefits in Kind

Here are some examples of what HMRC considers benefits in kind:

  • Company car
  • Company van
  • Mileage & fuel cards
  • Healthcare
  • Parking spaces

3. How Tax and National Insurance Works on Benefits in Kind

Employers pay additional employer’s National Insurance on the cash value of the benefit in kind provided. The employee must also pay income tax on the cash value of the benefit.

4. How to Work Out the Cash Value of a Benefit in Kind

Generally, the cash value of a benefit in kind is worked out as the amount paid during the tax year.  So for example, if an employee is provided with private healthcare which costs the employer £200 a month, then the cash value for the tax year would be £2,400 (12 months x £200).

5. Non Taxable HMRC Benefits in Kind

Some benefits do not attract additional tax and National Insurance and may not even need to be reported on to HMRC. Here are some examples:

  • Salary sacrifice arrangements;
  • A single mobile phone in the name of the business;
  • Bikes for employees;
  • Expenses covered by a exemption agreement (see below);
  • Trivial benefits.

6. Benefit in Kind Exemptions

Certain business expenses reimbursed to employees at the same amount that they cost are covered by an exemption. That’s costs like:

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

From April 2016 expenses covered by the benefit in kind exemption do not need to be reported on a P11d form and do not attract additional tax and NI. Prior to April 2016, businesses needed to contact HMRC to arrange a dispensation agreement.

Businesses don’t need to apply for an exception but they should keep all receipts and expense claim forms as evidence as well as having an approval process in place for managing/approving expense claims.

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About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.