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Rewarding your staff

One of the best ways to show employees your appreciation is to offer them benefits in kind, (otherwise known as ‘perks’), These are payments made in cash or through the provision of goods or services that you make to your employees outside of the PAYE system.

However, before you start putting together your employee benefits package, you should keep in mind that HMRC treat each benefit differently – some are taxed, while others are not. So it is important to take a careful look at both the advantages and tax implications before offering benefits to your employees.

HMRC defines benefits as anything of monetary value that you provide to your employees which isn’t “wholly, exclusively and necessary” for them to perform their contractual duties. For example, if you provided a vehicle to a delivery driver or sales representative, HMRC would consider the vehicle essential to their work.

Examples of benefits in kind

HMRC has a long list of expenses and benefits. Some common examples, where tax may not have to be paid include:

• Staff meals provided at a canteen
• Accommodation, supplies and services on your business premises
• Payments to a pension • Certain types of childcare arrangements
• Christmas or other annual party
• Mobile phones
• Bicycle and cycling safety equipment

And some examples of taxable benefits in kind:

• Company cars for personal use
• Private medical insurance
• School fees for employees’ children
• Interest-free or cheap loans to employees over £10,000
• Holidays or holiday vouchers
• Non business travel and entertainment expenses

If you provide an employee with a taxable benefit in kind, they will pay the financial value or cash equivalent of the benefit on top of their income tax. You may also need to pay Class 1A Employer National Insurance (NI) contributions on the taxable value of the benefit.

Reporting benefits to HMRC

As an employer, you need to let HMRC know that your employees receive benefits in kind. Form P11D must be completed for each employee and submitted by 6th July following the end of the relevant tax year. You’ll also need to provide a copy of the form to your employee.

You must also complete and file a P11D(b) form. This is a summary of each individual P11D form you have completed so HMRC can calculate how much NI you need to pay on the total expenses and benefits provided. Alternatively, you can pay the tax on benefits through your payroll. To do so, you’ll need to register with HMRC before the start of the tax year (6th April).

Important

The tax rules around benefits in kind are complex. This article is only a brief overview to show how they can incentivise your employees and help you to attract new staff. For more information, please check the gov.uk website or speak to us.

12/04/2023