Benefits in Kind

Employee tax codes and National Insurance

Benefits in kind – tax on company cars and benefits

Likely problems
If HMRC does not have up-to-date information on taxable benefits in kind, employees may be on the wrong tax code and hence be paying the wrong amount of tax. This could lead to overpayment of tax, or hidden tax bills. Changing jobs and changing taxable benefits in kind (like a company car) can complicate the position and mean that HMRC’s information is not up to date.

From April 2016, there is a new scheme for ‘payrolling’ benefits in kind. Payrolling mean that your employer treats the cash equivalent of the benefits as part of your pay. Benefits in kind which are payrolled should not be included in your PAYE tax code.  There is more information about the process here (note the guidance is intended for employers).  As a result of these changes, it is more important than ever for you to check and understand you PAYE code.

Tax is due on company cars, medical insurance, free or reduced interest loans and other perks provided because of employment. This tax is usually collected via PAYE. Unless the benefit if payrolled, the code number of the PAYE tax code is reduced to reflect the benefits. This means that more tax is deducted from the employee’s pay each pay day. At the end of the tax year, the employer should give the employee a summary of the taxable benefits provided on a form P11D. Where a benefit in kind has been payrolled, you will not normally receive a P11D.

Some employers now tax benefits in kind through the payroll – called ‘payrolling’ the benefits. To do this, the employer includes the cash equivalent of the benefit in the employee’s pay on a month by month or week by week basis. This can have implications for both Universal Credit (where payrolled benefits are included as income, but ones reported only on form P11D may not be included as income) and tax codes (as payrolling benefits is an alternative to adjusting the benefit in a tax code).

It is therefore very important that employees are clear about what benefits in kind they are receiving and how they are being taxed.

Further information
From HMRC –

What employees should do
As an employee you should be given a copy of form P11D by your employer by 6 July following the tax year end.This shows that taxable benefits in kind you received from your employer in the tax year. If you do not agree with the amounts shown, you should take this up with your employer and ask the employer to revise the form.

HMRC will also have been sent a copy of the P11D form. This will be used to check if you have paid the correct amount of tax during the year.

You should use the P11D information to check any P800 tax calculation form which is sent to you by HMRC. In addition, you should also check your PAYE tax code to ensure that any adjustments for benefits are up to date. If you think that HMRC’s information about your taxable benefits in kind is out of date you should contact HMRC to point this out.

If you think that the taxable benefits information shown on a PAYE tax calculation form (P800) is incorrect, you should check the figures on the form against your P60 and P11D. You may need to contact both HMRC and your employer to resolve any errors.

Where an employer ‘payrolls’ benefit in kind, you will need to check both your tax code and their payslip. Queries over payrolled benefits should be taken up with the employer; queries about the tax code with HMRC.

If you registered for self assessment (eg you are a company director) then you will need to include details of any benefits in kind, from your P11D, on your self-assessment tax return.