The provision of benefits-in-kind can form part of a tax-efficient profit extraction strategy. Providing benefits to employees who are not family members can be useful to generate goodwill, and where an exemption is available can be particularly tax efficient. However, the provision of benefits-in-kind imposes a number of compliance obligations on the family company. Where the benefit is taxable, unless the benefit is living accommodation or an employment-related loan, the employer can opt to deal with the tax on the benefit through the payroll (‘payrolling’). However, this is only an option if the employer signs up to payroll the benefit before the start of the tax year, as HMRC does not accept requests to payroll in the year. Once a benefit has been registered for payrolling, it remains registered unless cancelled by the employer. Again, this must be done before the start of the tax year for which the cancellation is to have effect. Employees must be given details of their payrolled benefits for a tax year no later than 31 May following the end of the tax year.
If taxable benefits are provided to employees and these are not payrolled (or included within a PAYE Settlement Agreement), the employer must report the taxable benefits provided to each employee to HMRC on form P11D by 6 July following the end of the tax year for which the benefits were provided (so, by 6 July 2022 for taxable benefits provided in the 2021/22 tax year). The employee must be given details of the benefits returned on their P11D or a copy of their P11D by the same date. A Class 1A National Insurance liability arises in respect of most taxable benefits provided to employees, which are not dealt with by means of a PAYE Settlement Agreement. The Class 1A liability is an employer-only liability payable at the Class 1A rate of 13.8%. Employers who have provided taxable benefits to employees must file a P11D(b) by 6 July after the end of the tax year. This is the employer’s declaration that all required P11Ds have been filed and also the statutory Class 1A National Insurance return. A P11D(b) is required even if there are no P11Ds to submit because all taxable benefits have been payrolled.
The general rule is that benefits are valued based on the cost to the employer. There are also specific rules for certain types of expenses.
Cars – The benefit on company cars is dependent CO2 emissions and the list price. Where private fuel is paid for there is a fuel benefit. If the employee’s own car is used for employment purposes (not commuting) then they can be reimbursed at the Revenue’s suggested rates.
Where the reimbursement is greater than these rates a benefit will arise. If less then the employee can claim the difference as an expense.
Trivial Benefits – Where benefits meet the definition of ‘trivial’ they can be excluded from the P11D, however, there is an annual cap of £300 on this exemption for directors their family and their household.
To be trivial the benefit must cost less than £50 to provide, it cannot be cash or a cash voucher, this does not include store gift cards.
Staff Parties- There is an exemption for staff events that do not exceed a total of £150 per year.