Capital Gains Tax (CGT) - rules rewritten
Charities: Trustees' Responsibilities
Consumer Protection and the Law
Corporation Tax Self Assessment
Dividends - the Post 6 April 1999 Regime
E-Commerce: The Jargon Demystified
E-mail/Internet Acceptable Use Policy
Limited Liability Partnerships
National Minimum Wage
Preparing for your Accountant
Statutory Maternity Pay and Statutory Sick Pay
Tax Saving Opportunities for Companies
Travel and Subsistence for Directors and Employees
Use of Trusts
BENEFITS IN KIND |
| 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. - Is the benefit taxable? - If the benefit is taxable, what is its taxable value? In this factsheet, we give guidance on some of the main benefit in kind rules and indicate 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. |
| SETTING THE SCENE |
| All emoluments of an
office or employment are taxed under Schedule E. 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. |
| REPORTING |
| Employers are required to
notify the Revenue 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 or reimbursed expense must be reported on this form. However, where the reimbursed amounts represent genuine business expenses a claim can be submitted by the taxpayer on his or her tax return, (or in writing to the Revenue if they do not receive a tax return) thus resulting in a nil liability. |
| DISPENSATIONS |
| Many expense payments do
not involve a tax liability as a corresponding claim is made by the employee for amounts
expended wholly, exclusively and necessarily for business purposes. A dispensation, granted by the Revenue, allows certain expenses to be ignored when completing P11Ds. Commonly, a dispensation covers travelling and subsistence expenses and routine entertaining. Top of page |
| NATIONAL INSURANCE |
| In general employees’
national insurance (NI) is not due on benefits in kind except vouchers, stocks and shares,
the discharge of an employee’s personal liability and benefits provided by way of
‘readily convertible’ assets. Most benefits in kind are now subject to Class 1A (an employer’s NI contribution). As this amounts to 11.9% of the taxable value of the benefit, you may need to reconsider the tax efficiency of providing benefits. Please consult us for advice. |
| NON-TAXABLE BENEFITS |
Certain benefits are not taxable on
anyone. The most important ones are
|
| TAXABLE BENEFITS |
| The following benefits are taxable on
all employees - any living accommodation provided, unless job related - vouchers - credit tokens. 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. Company cars - this is probably the most common benefit and the taxable amount will be based on 35% of the manufacturer’s list price (including accessories) of the car. There are reductions for high business mileage, cars over four years old and where the employee makes a contribution towards the cost of the car. The taxation of company cars will be reformed in 2002. Then the taxable benefit will continue to depend on the list price of the car as now but the level of benefit will depend on the carbon dioxide emissions of the car rather than business mileage. Please talk to us for further details about the changes. Private petrol - a separate charge applies where private fuel is provided, unless the employee reimburses the employer for all private mileage (including travel between home and work). The charges are determined by reference to engine size and the type of fuel provided. Cheap or interest free loans - no benefit will be taxed where the loan does not exceed £5,000. Medical insurance - the cost of providing medical insurance is a taxable benefit. Use of company assets - an annual benefit is taxed where employees have the private use of company assets. The annual benefit amounts to 20% of the asset’s market value when first made available to any employee. Insignificant private use of some assets is no longer a taxable benefit since 6 April 2000. Telephones - private home telephone bills, including rental charges, which are paid for by the employer will be taxed as a benefit. This is no charge for private calls using a mobile phone. Social functions for employees - the Revenue will not tax as a benefit a Christmas party and other annual functions provided the total cost of the events in a tax year is less than £75 per head. |
| HOW WE CAN HELP |
The taxation of benefits in kind 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. For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm. |