What is a Benefit in Kind (BIK)?
A benefit in kind (BIK) is a taxable benefit that an employee receives from their employer, in addition to their salary. The most common example of a BIK is a company car, but it can also include private healthcare, free or subsidized gym membership, and free or discounted accommodation. In order to calculate the taxable value of a BIK, HMRC uses a formula that takes into account the retail price of the item, minus any VAT and minus any employee contributions.
How do I report a BIK on my P11D form?
If you benefit from having a car, electric car, tesla or van made available to you for private use by your employer, you may be required to pay income tax and national insurance on the value of this benefit. This is known as a benefit in kind (BIK). The amount of tax you pay will depend on the value of the car and your personal tax bracket. You will need to report the BIK on your P11D form, which is a yearly tax return for people who are self-employed or have certain types of employment income.
To calculate the value of the BIK, you will need to know the list price of the car, the CO2 emissions, and the date of registration. You also need to inform your accountant to declare these benefits in your payroll. If you are a company director, your company will also get the benefit of paying less corporation tax.
What are the benefits of reporting a BIK on my P11D form?
There are a number of benefits to reporting a BIK or benefit in kind, on your P11D form. Perhaps the most obvious benefit is that it helps to reduce your tax liability. By reporting a BIK, you are effectively telling HMRC that you have received a benefit that should be taxable that will be paid by your employer.
By understanding exactly how much income you are receiving from benefits, you can make better decisions about how to allocate your resources. In sum, there are many good reasons to report a BIK on your P11D form.
How do I calculate the value of a BIK for tax purposes?
You may have to pay tax on a Benefit in Kind (BIK) if you receive something from your employer that's not part of your salary, for example, a company car. The amount of tax you'll pay is based on the value of the BIK.
To work out the value of most BIKs, you use their open market value (OMV). To calculate the OMV of a company car, for example, you'd look up how much it would cost to buy on the open market.
Some items have a special method for calculating their OMV. For example, there's a specific formula for working out the value of living accommodation.
The amount of tax you pay on your BIK is based on how much you earn. You can use our benefit-in-kind tax calculator to work out how much tax you'll pay.
If you're an employee, your employer will normally deduct any BIK tax from your salary before they pay you.
What is considered to be a taxable benefit in kind from employment income?
A taxable benefit in kind is any perk that an employee receives as part of their employment package, but which is not paid directly into their salary. The most common benefits in kind are
- company cars,
- gym memberships, and
- mobile phones.
However, any non-cash benefit that an employee receives from their employer could potentially be classed as a benefit in kind. This includes
- free or discounted travel,
- corporate hospitality,
- non-business entertainment expenses,
- non-business travel expenses,
- any asset that`s provided by the company to an employee that has significant personal use (for example a laptop with personal use).
Benefits in kind are taxed at the same rate as the individual's marginal rate of income tax. This means that higher and additional rate taxpayers will pay more tax on their benefits in kind than basic rate taxpayers. Because of this, it is important for employers to be aware of the tax implications of any benefits they offer to their staff. Directors of limited companies are also liable for Benefit in Kind tax on any loans they receive from their company. If you're receiving a loan from your employer, make sure you're aware of the potential tax implications, for an example of Christmas parties under the “company hospitality category, click here.
There are some exemptions and reliefs available for certain types of benefits in kind, so it’s always best to speak to an accountant if you’re unsure about what to do. If you’re planning to submit a P11D form with benefits in the kind listed, we can help. Our team of experts is ready and waiting to partner with you to ensure everything is done correctly and that you don’t end up paying more tax than you need to."Call us today