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We consider some of the main benefit rules that apply to directors and employees. At Hart Shaw, we can advise you on the benefit rules and whether the benefits are worth having when the tax bills are taken into account.
Today the remuneration of many directors and employees comprises a package of salary and benefits.
Essentially two tests must be applied in determining the tax implications of any benefit.
In this factsheet, we give guidance on some of the main benefit in kind rules and outline some common types of benefits.
It is not intended to be an exhaustive guide and any decisions should be supported by professional advice appropriate to your personal circumstances.
All earnings of an office or employment are taxable. Where they are not in cash it becomes necessary to put a value on them.
As a general rule unless the benefit can be converted into cash there is no taxable benefit. Where it is convertible into cash the taxable amount is the resale value.
To prevent avoidance, additional legislation charges certain other benefits to tax. The detailed rules are complex. We can advise on structuring remuneration packages, including benefits, in a tax efficient way.
Employers are required to notify HMRC of benefits provided to directors and most employees by completing forms P11D annually.
Penalties can apply where the forms are submitted late or are incorrect.
The full amount of any benefit must be reported on this form.
In general, employees' national insurance (NIC) is not due on benefits except vouchers, stocks and shares, the discharge of an employee's personal liability and benefits provided by way of 'readily convertible' assets.
Most benefits are subject to Class 1A NIC payable by the employer. As this amounts to 13.8% of the taxable value of the benefit, you always need to consider the tax efficiency of providing benefits.
Please consult us for advice.
Certain benefits are not taxable. The most important ones are:
A statutory exemption applies for trivial benefits in kind. The exemption sets out a number of conditions that must be met for a benefit to be exempt which are that the:
In addition where qualifying trivial benefits are provided to directors and other office holders of close companies they will be subject to an annual cap of £300. In a case where the benefit is provided to a member of the employee's family or household who is not an employee of the employer, this benefit will count towards the £300 exempt amount. Where the director's or other office holder's family or household member is also an employee of the company, they will be subject to a £300 cap in their own right.
The following benefits are taxable on all employees:
In addition, special rules apply to tax other benefits received by directors and all but the lowest paid employees. Common types of benefits provided are detailed below.
The government has introduced new rules which limit the income tax and employer NICs advantages where:
The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the taxable value or the value of the cash forgone.
These rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, Cycle to Work schemes or Ultra-Low Emission Vehicles.
This change took effect from 6 April 2017. Those already in salary sacrifice contracts at that date become subject to the new rules in respect of those contracts at the earlier of:
Employers may wish to review their car policy in light of these rules.
The taxation of employment benefits is a complex area. Ensuring that you comply with all the administrative obligations and plan in advance to minimise tax liabilities is essential. We can help you with the following:
We would welcome the opportunity to assist you with any planning and compliance matters relating to employment benefits so please do contact us at Hart Shaw.
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