lecture 6 - benefits in kind

Question 1

what is a benefit in kind?

Answer 1

non-pay rewards, or non-wage receipts in return for labour. of a personal benefit to you. Any taxable benefit received as part of an employment.

Must be given a value that can be included in employment income calculations and either be exempted or taxed accordingly. When computing income, value of all taxable benefits must be added to wages or salaries in tax computation

Question 2

what cost are benefits in kind taxed on?

Answer 2

For most benefits employees are assessed on the cash equivalent of benefits. Becomes marginal cost if benefit is provided to non-employees as well. benefits treated as part of earnings and chargeable to income tax under employment income rules. amount taxed = cash equivalent of benefit, less contribution made by employee to those providing benefit. Pepper vs Hart (92) found cost = marginal cost to provider in circumstances where benefit also available to non-employees. usually substantially lowers value to be taxed.

Question 3

what should employees consider when contributing to private fuel costs?

Answer 3

if employees make contribution to cost of fuel for private purposes, but not entire cost, assessable benefit not reduced. therefore if partial contribution, more efficient to contribute to running costs than fuel as payment reduced overall benefit charge.

Question 4

how does a company car benefit in kind arise?

Answer 4

if there is any personal use at all, taxable benefit must be calculated. only way to avoid benefit in kind of personal use of company car, is to get to office in your own way, pick up keys from reception and do whatever and then give it back to reception. even commuting is deemed personal. and no saying ‘i used it 10% for personal’, it is full benefit in kind that you’ll have to pay.

Question 5

what is the calculation for the benefit in kind of a company car?

Answer 5

benefit = price of car * % determined by reference to appropriate table

Question 6

how do company cars work regarding NI?

Answer 6

employers now required to pay NICs on company cars, employees not currently required.

Question 7

what do you need to know to determine company car benefit charges?

Answer 7

list price of car when new - all car benefits assessed on list price to prevent abuse of quoting high price and offering discounts. includes all accessories and relevant taxes.

age of car

CO2 rating - above or below 50g/km - see tables. ROUND DOWN to nearest percentage. then multiply by list price when new for annual benefit in kind added to car drivers income

fuel type - diesel has 4% supplement.

details of accessories added - nonstandard, cost must be added to list price unless under £100 and then can be ignored. if only available for part of year no reduction, full year charge applied.

info on contributions towards cost of buying car (capital contributions) or towards private usage

periods car was not available to be used - if car unavailable for part of year pro-rated proportionally. car must be unavailable (for anyone to drive it, not just you) for at least 30 days consecutively.

Question 8

what is the limit on capital contributions for company cars?

Answer 8

capital contributions deduction from list price max = 5000, even if employee actually paid more than 5k.

if employee makes contribution towards running of car (not inc insurance), deducted from annual benefit charge. payment only counts if made in tax year in which private usage occurred

Question 9

how does the benefit on computers arise?

Answer 9

benefit if the private use is significant. if given to do the job, likely the private use is fairly insignificant, so no benefit.

if given to employee, benefit = 20% cost of provision.

Question 10

how are benefits on assets used by employees assessed?

Answer 10

if asset provided for private use of employee or director, the assessable benefit is annual value, or greater of:
20% market value when first provided as benefit to this employee
rent or hire charges paid by employer.

if asset only available for part of year, prorated. if ownership transferred to employee, further assessable benefit may be due as difference between sum paid for asset by employee and higher of: current market value of asset on date transferred; market value when first provided less total annual benefits assessed so far.

Question 11

taxable benefit for mobile phones?

Answer 11

no taxable benefit for one phone only

Question 12

benefit in kind for car parking spaces at/near place of work?

Answer 12

no taxable benefit

Question 13

benefit on electricity for company cars and electric charging point at employee’s home?

Answer 13

no taxable benefit

Question 14

how is the BIK on vouchers assessed?

Answer 14

assessable on cost to employer of providing benefit.

Question 15

do scholarships give rise to BIKs?

Answer 15

paid to employees for own eduction exempt. family members, taxed on actual cost of scholarship except when no more than 25% of award available because of fact recipient is family member

Question 16

does pension advice create a BIK?

Answer 16

no - no taxable benefit, unless over £500

Question 17

BIK on in-house sports facilities?

Answer 17

exempt provided available to all. For employees and families.

Question 18

BIK on entertainment/gifts?

Answer 18

exempt if from third party and gift less than £250. Has to be not provided by employer or persons connected to employer. Gifts given in recognition of services that have been or are to be performed.

Question 19

do annual parties create BIKs?

Answer 19

exempt:
Up to £150 per head
Over £150, full amount taxable
Meals in employers cafe for staff generally not assessable

Question 20

relocation costs = BIK?

Answer 20

up to max of £8,000 exempt (excess taxable). If employee has to move only or main residence for work reasons, and new location is more than a reasonable day’s commute from current residence.

Question 21

does childcare raise a BIK?

Answer 21

not taxable benefit if run by employer, but vouchers for a place elsewhere would be taxable.

Question 22

is there a BIK from working at home?

Answer 22

exempt: if employer requires employees to wfh, able to pay up to £6 a week or £26 a month towards additional costs. can’t be used to cover costs that related to combined use like broadband. do not need to be supported by evidence, as concession from HMRC. amounts over £6 a week can be tax free if evidence provided. can’t get personal tax relief for difference if you’re claiming less than £6 a week. nothing tax free if you choose to wfh, have to be required.

Question 23

BIK from long service awards?

Answer 23

taxable except extra-statutory concession exempts awards where period of service =20+ years and is not more than £50 equivalent per year. If in cash, taxable.

Question 24

do suggestion schemes create a BIK?

Answer 24

rewards exempt if conditions satisfied including open to all employees. If award exceeds 5000, excess always taxable.

Question 25

what is a trivial benefit?

Answer 25

less than £50 to provide, not taxable.

Question 26

how is the BIK of accommodation determined if rented vs owned?

Answer 26

benefit = rental value if rented
if property owned there are special rules. taxed on annual value BUT if accommodation cost employer > 75K to buy/improve or if bought > 6 years ago and now worth >75k, there is an additional benefit.

Question 27

what is annual value?

Answer 27

Annual value = rent that might reasonably be expected to be obtained on letting of accom from year to year. Assumes employee pays all taxes, rates, bills etc., but employer pays to maintain property.
In practice annual value = rateable value of property.
If property not owned by employer but is rented by employer for employee, employee will be assessed on higher rate of annual value or actual rent paid.

Question 28

when is there no benefit in kind for accommodation?

Answer 28

when job related. job related if:
employee is required to live in acc for the proper performance of their duties

employment is kind where customary to provide acc, e.g. clergyman/pub manager/policeman

acc provided for reasons of security.

Question 29

what is making good?

Answer 29

employees giving something (usually cash) to providers to reduce BIKs

6th july following tax year end is cutoff date by which making good must have occurred for payments otherwise considered benefits in kind.

Question 30

what are class 1B benefits? how do you calculate them?

Answer 30

Minor eg taxi fares (non business)
Irregular eg use of company flat
Impractical to apply PAYE to eg. parties exceeding £150 per head
Employer enters Pay Settlement Agreement with HMRC
Value of benefits calculated, grossed up and tax paid by employer on behalf of employee.

Class 1B NI = 13.8% of gross benefit

Question 31

what is a PSA? how do they work?

Answer 31

Pay settlement agreement - employer paying your tax on your behalf.

creates a benefit in kind, and there are national insurance implications.