Benefits in Kind are benefits given to employees that are not a part of their normal salary or wage.
The QTAC software will provide the ability to tax and report these benefits to HMRC from the 17/18 software onwards.
Signing up for Benefit in Kind
When you are payrolling the benefits you need to declare them up front at the start of the tax year so that HMRC can change the employees tax code (removing any benefits that are currently affecting the tax code). You would need to declare them online using HMRC’s service by clicking here.You then need to add the benefits onto the payroll in each pay period so that the tax can be added. You must continue to payroll that benefit until the end of the tax year or until the benefit is stopped.
You can view HMRC’s guidance here: https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll
The guidance states that the benefits must be declared before the start of the tax year (05/04).
Benefits that should be considered
There are many benefits that can to be considered for payrolling. These include, but are not limited to:
Accommodation expenses, Bills for accommodation, Company car or van, Childcare expenses, Clothing, Company credits cards, Holidays, Travel expenses, Medical insurance, Training, etc.
There are often exceptions to the rules. Some of the most frequent are highlighted in the section below.
Benefits that should not be considered
There are several benefits that do not need to be considered for benefit in kind.
For others there are exceptions where you may be entitled to a discount or immunity to the tax.
Employee below threshold
If the employee is earning less than their personal allowance. Their personal allowance can be used to offset the tax that the employee pays on those benefits. The benefit will still need to be processed in the software and will still need to be taxable, but it may not actually deduct any tax.
If the company car is powered entirely by electricity then you do not have to pay tax on that benefit.
There are examples where you are exempt from paying the benefit in kind for accommodation. For example if you are the caretaker of a school and you must live in house in order to do your job correctly.
Another example would be if the accommodation was specific for the employee as they need special safety for their work i.e. working in the military.
Hotels and temporary accommodation do not need to be taxed as long as the room is being paid for directly, rather than providing the employee with the money they need to book the rooms themselves.
If the benefit is less than £50, is not cash or a substitute to cash (eg vouchers), it is not a reward or bonus from your work and is not salary sacrifice then the benefit is considered trivial. All of these criteria need to be filled before the benefit is not taxable.
Configuring benefits in the software
As of the 1718 tax year the QTAC software will be able to maintain benefits in kind. If you decide to payroll the benefits, then you will need to declare them in the software at the start of the year, or when the benefit starts.
Setting up the benefit
To create the benefit you need to add it into the employee maintenance window on the tab for “Benefits In Kind”.
Once you have selected ‘Add New’ you will be able to select a benefit from the drop down menu. The letters that show on the left hand side of the name of the benefit show the category that the benefit belongs to. You should use any documents that you have to decide which benefit you need to use.
When you have selected a benefit, you will be able to enter different fields depending on the benefit you have selected. (Company cars and loans are listed further below)
This is usually the annual amount that the benefit will be. The software will divide this value among the pay periods for that employee when you open and pay.
Amount made good
This is the value that the employee will be contributing towards the benefit. The employee will contribute towards the original cost of the benefit so that the tax that is being deducted is reduced on their pay.
For example: A company car is bought, the company pays £10,000 and the employee pays £5,000. When the benefit is payrolled the employee will only pay tax on the £10,000 because they contributed the £5000 themselves.
Setting up the benefit for Company Car
When adding a benefit for a company car you will see more information than for a normal benefit. Click ‘Start > Next’ to see all of the relevant fields for a Company Car.
Once you have filled the fields and saved the benefit the deduction will start coming off of future pay periods. If you want to add another car, or change the details of the car on the benefit then you can click the ‘Edit’ option to amend the details.
If you have made as mistake by adding a company car with incorrect details, or didn’t mean to add the car at all, then you can delete the benefit. This is providing you have not submitted the benefit through an FPS, you can do this by pressing the ‘Delete’ option in the benefit screen.
If you wish to stop a car benefit, you need to input a date within the ‘Available to date‘ field, this will stop the benefit.
What to do when a benefit changes part way through the year
There are certain cases where benefit may change part way through a year, which would require the benefit amount to be adjusted. This may require you to either increase or decrease the benefit amount. As an example, an employee has a medical insurance benefit which runs from September to August, in September the payments made towards the medical insurance are subject to change. The employee currently has a benefit of £100 a month.
Benefit needs to be increased
The employees benefit needs to be increased from £100 to £200 for the remaining months.
The original annual benefit is £1200 for the whole year (£100 * 12 months over the year).
1. Calculate the difference between the current monthly benefit deduction, and the new monthly benefit deduction
In September (Month 6), the benefit needs to be increased to £200. We need to take the difference from the original benefit deduction amount, and the new required amount (200-100 = 100).
2. Multiply by remaining periods in the tax year
£100 is the difference between the old and new benefit amount. There are 6 months left in the year, so we multiply by these remaining months.
£100 * 6 months = £600
3. Add the difference to the original benefit amount
£1200 + £600 = £1800
Benefit needs to be decreased
The employee's benefit needs to be decreased from £100 to £50 for the remaining months.
Calculate the new annual benefit amount
The new annual benefit amount = £600 (£50 * 12 months over the year).
Divide the new annual benefit by amount of months in year, and multiply this by the number of months left in a year
(New annual benefit amount / 12) * the number of months left in the year.
(£600 / 12) * 6 months