What you need to know about benefits in kind, as a limited company
Posted on 31st August 2021
Setting up your own limited company is an exciting step.
You now get to define your brand, run your business in the most tax-efficient way, and pitch for work you wouldn't have been able to win as a sole trader.
But with this, comes a lot of responsibilities and you also suddenly become entitled to many benefits, some of which are not cash related.
An example is benefits in kind.
What are benefits in kind?
It’s a term that’s used broadly and refers to the perks given by a company that have a financial value but are not paid in cash form.
As a limited company director, you can gift benefits in kind to yourself as an employee of the business, as well as your team. It’s worth noting that some benefits will be taxable, some won’t. However, where there is monetary value, these must be treated as taxable income and declared to HMRC.
Some examples of benefits in kind
Some of the most common, taxable benefits in kind include:
Company cars
Fuel for non-business uses
Private healthcare
Living accommodation provided by you, as the employer
Non-business entertainment and travel expenses
Assets that have personal use on top of business use
Since there are many rules surrounding these perks, it’s important that you speak to an expert accountant to make sure you’re paying taxes on the right benefits. This is where we can help you.
For example, some of the perks that don’t require you to pay tax include:
Safety clothes
Staff canteen
Mobile phone contracts
Work training and development
Employer payments to pension schemes
Medical check-ups and eye tests
Paying tax on benefits in kind
To pay the correct tax on benefits in kind, you’ll need to determine the cash value equivalent. You’ll then need to apply your income tax rate on the value. For example, if you’re on a high tax rate, you’ll pay 40% of the value of the benefit as tax. You must also pay Employer’s National Insurance Contributions at a rate of 13.8%, even if this is for yourself.
You will need to complete and file a P11D form and a P11D(b) document with HMRC, and this must be done by 6 July following the end of the tax year. For example, if you provide perks in the tax year of 2021/22, you’ll need to report them by 6 July 2022.
As it’s a separate matter, your forms won’t need to include certain things that are considered business expenses. For example, you don’t need to add office supplies and materials.
Penalties - this is the part you must really take note of!
Failure to submit your forms on time, or not at all, can incur penalties of up to £3,000 per form. The same goes for incorrect information. Making sure they are sent to HMRC on time and without any errors is critical.
If you’re unsure if you should add something or leave it out, contact the Abaqus team. With our many years’ of experience in helping businesses to maximise their profits and pay their taxes on time, we can put your mind at rest.
Speak to Abaqus today for more information on benefits in kind and how we can help on 01452 596765.
Contact us today to find out how we can help you!
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