Employment Benefits Explained

At McDade Roberts accountants in Preston, Longridge, Bamber Bridge and Garstang, we aim to help our clients by taking the confusion out of financial legislation and tax. One area of confusion can be employment benefits so here is a guide on what you need to know.

Today the remuneration of many directors and employees comprises a package of salary and benefits. In this blog, we give guidance on some of the main benefit in kind rules. Naturally, all circumstances are different so if you would like tailored advice, please give us a call as the first consultation is always free.

Employee Benefits – Top line

All earnings of an office or employment are taxable. Where earnings 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.

The detailed rules are complex. McDade Roberts can advise on structuring remuneration packages, including benefits, in a tax efficient way so we are always just a phone call away.

Reporting – P11D

Employers are required to notify HMRC 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 so we ensure our clients meet these deadlines.

National Insurance

In general, employees' national insurance (NIC) is not due on benefits except vouchers, stocks and shares, the discharge of an employee’s personal liability and benefits provided by way of ‘readily convertible’ assets.

Most benefits are subject to Class 1A NIC payable by the employer. As this amounts to 13.8% of the taxable value of the benefit, you always need to consider the tax efficiency of providing benefits. Confused? Don’t forget we are here to help.

Look out for our separate blog on nontaxable and taxable benefits for a list of what is and what is not included.

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.

• Employer provided cars - this is probably the most common benefit and the taxable amount will generally be based on a range of 9% - 37% of the manufacturer’s list price (including accessories) of the car. The taxable benefit depends upon the carbon dioxide emissions of the car.

  There are reductions for unavailability of the car and where the employee makes a contribution towards the cost of the car.

  Please talk to us for further details on the application of the rules.

• Private fuel - a separate charge applies where private fuel is provided for an employer provided car, unless the employee reimburses the employer for all private mileage (including travel between home and work). The charges are determined by reference to the percentage applying to the company car. A set figure of £22,600 for 2017/18 (£22,200 for 2016/17) is multiplied by this percentage to determine the taxable benefit.
• Van - The scale benefit charge for the unrestricted use of an employer provided van is £3,230 for 2017/18 (£3,170 for 2016/17). Where the restricted private use condition is met no benefit arises. Where an employer also provides fuel for unrestricted private use an additional fuel charge of £610 for 2017/18 (£598 for 2016/17) applies. Please do get in touch if you would like to ensure that employee van use meets the restricted private use condition.
• Cheap or interest free loans - no benefit will be taxed where the loan does not exceed £10,000.
• 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 certain assets is not taxable.
• Phones - private home phone bills, including rental charges, which are paid for by the employer will be taxed as a benefit.

Salary Sacrifice

The government will legislate to limit the income tax and employer NICs advantages where:

• benefits in kind are offered through salary sacrifice or
• where the employee can choose between cash allowances and benefits in kind.

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or Cycle to Work. Following consultation, the government has also decided to exempt Ultra-Low Emission Vehicles, with emissions under 75 g/km of CO2.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:

• an end, change, modification or renewal of the contract
• 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021.

Employers may wish to review their car policy in light of these new rules.

How we can McDade Roberts help?

The taxation of employment benefits is a complex area. Ensuring that you comply with all the administrative obligations and plan in advance to minimise tax liabilities is essential. Would you like help? Call us. The first consultation is always free and we are a friendly bunch so will be happy to help.