Overview
As we enter the season of preparing P11Ds for our clients, it's a great time to review the tax treatment of common benefits in kind. This guide offers an overview of these benefits, highlighting ways to optimize tax efficiency for both employers and employees.
Welcome to another session of topical tax tips with Bernard Critchley, Tax Manager at Aspen Waite.
Company Cars
Company cars remain a popular benefit, but they come with significant tax implications based on the car’s emissions and list price when new:
- Petrol and Diesel Cars:
- The benefit in kind (BIK) for petrol and diesel cars is calculated by multiplying the car's emissions percentage by its list price. This can result in a high tax charge, with percentages reaching up to 37%.
- Electric Vehicles (EVs):
- EVs have a substantial tax advantage with a BIK rate of only 2% of the list price, regardless of emissions. Additionally, electricity used to charge EVs is not treated as fuel, so there is no additional BIK.
- This makes switching to EVs an attractive option for reducing tax liabilities while promoting environmental sustainability.
Vans
Vans are another common benefit, with a standard BIK regardless of the van's size:
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Petrol and Diesel Vans:
- The standard BIK for a van is £3,960, translating to £792 of tax for a basic rate taxpayer.
- If the employer also pays for fuel, there's an additional BIK of £757, resulting in £140 additional tax.
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Electric Vans:
- Electric vans carry no BIK, offering a tax-efficient alternative to petrol or diesel vans. This can save employees a significant amount in tax.
Vouchers
Vouchers are increasingly used for bonuses and incentive payments, but they come with tax considerations:
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General Vouchers:
- £1,000 of High Street vouchers would result in a £200 tax bill for a basic rate taxpayer. Typically, employers cover this tax under a PAYE Settlement Agreement (PSA), meaning the employee receives the benefit without a tax charge.
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Childcare Vouchers:
- The previous scheme allowed basic rate taxpayers to receive up to £55 a week in vouchers without a taxable benefit. Although this scheme stopped for new employees in 2018, existing participants can still benefit. Newer salary sacrifice schemes offer similar benefits, enhancing net income by up to £816 annually.
Mobile Phones
Employers can provide one mobile phone per employee, covering all costs including line rental and private calls, without any tax charge. This is a simple yet effective benefit to enhance employee satisfaction.
Provision of Assets
Providing assets other than cars or vans can be a beneficial way to reward employees:
- Asset Calculation:
- The BIK for providing an asset is calculated at 20% of the market value when first provided.
- Examples include electronic equipment or specialist sporting equipment. For instance, a high-end road bike worth £3,950 would result in an annual tax bill of £316 or £632 for basic and higher rate taxpayers, respectively.
Subscriptions
Employers can pay for professional subscriptions without creating a taxable benefit. However, subscriptions to leisure or social clubs (e.g., golf clubs) are taxable, with a net saving of approximately £68 per £1,000 of expenditure.
Goods and Services
The BIK for goods and services provided by the employer is the extra cost incurred:
- Examples:
- Free shoes from a footwear manufacturer: BIK is the cost of materials and manufacturing.
- Free school placement for employees' children: BIK is the marginal cost of providing the placement.
- Free train travel for employees: Generally tax-free as there's no additional cost to the employer.
Conclusion
Employers can offer various benefits to enhance employee satisfaction without significantly increasing tax liabilities. This guide covers some of the most common benefits, but each situation is unique. For personalized advice and to maximize the advantages of these benefits, feel free to contact Aspen Waite.
Contact Us
- Email: bernard@aspen.co.uk
- Phone: 01278 445151