What is ‘benefit in kind’ and what does it mean for tradespeople?

What is benefit in kind?

Often called business perks, a ‘benefit in kind’ is a type of benefit that your employees could receive. These could be goods or services provided by you that are free or at a reduced cost for your staff.

You don’t factor in the value of the benefit in kind to their salary or wages. That means there may be benefit in kind tax and National Insurance that you’ll need to pay later.

Before you get up to speed on tax relating to a benefit in kind, it’s handy to understand what taxes tradespeople pay in general. Knowing how to file business taxes will also help you get to grips with benefit in kind taxes.

We recommend that tradespeople speak with their accountant about benefit in kind calculations as the rules are quite complex.

Benefit in kind examples

There’s quite a long list of items that could be a benefit in kind. HMRC has put together a handy list of A to Z of benefits and you may also want to check the rules before offering benefit in kind.

Here are some examples of benefit in kind that as a tradesperson you might need to know about:

Use of company car or van

Many trade businesses use vehicles. Sometimes, employees are allowed to drive them for personal use. However, if an employee of yours uses a company van for private use then this element is likely to be taxable.

A benefit in kind car allowance or van allowance can cover a number of expenses. These include:

• Company cars used for private journeys and the fuel used
• Company vans used for private journeys and the fuel used

What is private use? HMRC says ‘insignificant’ private journeys are exempt as a benefit in kind. For example, that might mean making a slight detour on the way to work to buy a newspaper and sandwich.

Pool vans and cars: This is where the vehicle is used by more than one employee and isn’t kept overnight at an employee’s home. If it is used only for business journeys then it probably won’t be a benefit in kind.

Healthcare – private medical cover

As a trade business, you could provide employees with private medical insurance. The same would apply to dental care. Both are types of benefit in kind.

However, these expenses are exempt from benefit in kind considerations:

• An annual health check
• Eye tests and glasses if needed to meet health and safety rules on using display screen equipment at work
• Medical treatment for work-related injuries
• Medical treatment to get an employee back to work (up to £500)

Accommodation

If you provide an employee with accommodation, it’s probably going to be counted as a benefit in kind. Bear in mind this would be long term accommodation, for example, and not an overnight stay in a hotel for work purposes.

Costs associated with accommodation include:

• Rent
• Council tax
• Utility bills
• Maintenance and repair costs

Loans

If your company chooses to loan money to an employee, it is usually regarded as a benefit in kind. Often, staff loans are given at a preferential or beneficial rate and sometimes they are written off by the company.

Company credit cards

If your business issues company credit or debit cards to your employees, you’ll need to keep a careful eye on how they’re used. Non-business purchases are counted as a benefit in kind.

Meals

This may not apply to you, but a company that provides meals for employees may need to treat them as a benefit in kind. Whether they are exempt as a benefit in kind will depend on several things, including:

• The value of the meal
• If they are in a workplace canteen or restaurant that all staff can use
• If they are taken away from the business premises
• If they are paid for in vouchers

Landline phones used at home

HMRC will often consider that a business landline installed in an employee’s home will also involve some personal use. If this is the case, then there may be some element of a benefit in kind.

What is a benefit in kind tax?

An employer has to report any benefit in kind it gives employees. This is done on a P11D form submitted to HMRC annually.

How does P11D affect tax code?

Your company could also choose to put benefit in kind expenses through its payroll. However, this will affect your employee’s tax code.

Bear in mind that there are some exceptions. HMRC does not allow employee accommodation expenses or interest-free loans to go through payroll. They must be reported on the employee’s P11D.

By choosing the payroll option, the benefit in kind is taxed as part of the monthly payroll. The deduction will appear on the employee’s monthly payslip.

Examples of a tax-free benefit in kind

Not all employee expenses that are benefits in kind carry a tax burden. The following are not counted as taxable benefits:

Bicycles

As a green incentive, the lending or hiring bikes is tax free, so long as they are available to all your employees. They have to be used mainly to travel to and from work.

Mobile phones

For example, if your business gives a mobile phone and SIM card to one of your employees for business use. The contract has to be between the company and the mobile phone supplier. Employees are allowed to make a limited number of personal calls on the work mobile phone.

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Childcare

The government is expanding its programme of childcare support in the workplace. Most trade businesses do not have the ability, but companies that provide employees with workplace childcare would not have to treat it as a benefit in kind.

Gifts

Your company can give its employees gifts valued at up to £50 (but not in cash) and it won’t be a taxable benefit in kind. Anything larger is subject to taxation.

Working from home

While you may not be able to fix a leak for your customer, or rebuild their wall from home, many companies now have working from home options. Hybrid work is also increasingly popular. As a trade business owner, you will likely have done this without even thinking about it.

Business expenses include computers and laptops. They must be only for business use, although ‘insignificant’ private use is allowed.

Household expenses are also exempt types of benefit in kind. HMRC sets a £6 per week limit on these.

Social functions

Company events like the annual staff Christmas party or summer barbecue, if they’re open to all employees, are mainly exempt. The cost per person has to be £150 or less.

FAQs

What is a benefit in kind?

These are goods or services that you can give your employees outside of their usual salary or wages. This will be either free or at a reduced cost, however, both you and your staff should know there may be tax and National Insurance implications.

What is counted as a benefit in kind?

They cover a wide range of things. Typically, they include use of a company vehicle, payment for accommodation, private healthcare insurance and loans to employees.

What is a P11D form?

This is the HMRC form that you’ll need to fill in, detailing benefits in kind for every one of your employees.

How does P11D affect tax code?

Benefits in kind can affect tax codes. It is why you need to familiarise yourself with all the rules. You can arrange for any tax to be deducted from an employee’s salary through the normal payroll system.

Is benefit in kind tax paid monthly?

No, you’ll need to fill out the P11D form once a year. You need to do this for any employee who received a benefit in kind during the year. The only monthly cost for benefit in kind would be if they are having it factored into payroll.