Benefits in Kind

Benefits In Kind 2013

Benefits in kind were once the preserve of only rich and powerful company directors, but over the decades the income limit for inclusion on a company’s returns has remained at £8500 and has brought even those on the minimum wage within the reach of paying tax on fringe benefits.

The rules covering benefits in kind that are reported to HMRC on the form P11D are complicated and in some cases extremely difficult to understand, with differences in the rules depending upon whether the employer or the employee actually made the contract. Some of the rules are based upon actual expenditure, others, such as the benefit applied to the personal use of a van, on a flat rate, whereas the car benefit rules are based upon a formula linking the notional manufacturers list price of the vehicle, when new, not how much it cost, and the CO2 emissions.

Another complication of the benefit in kind rules is that it is necessary to report some items even though there is no taxable benefit. If you go to London by train on business and buy the ticket at the station and your business refunds you the cost, it is still necessary to report the potential benefit on your P11D. You then need to make a s.336 claim that the expenditure is wholly, necessarily and exclusively for business purposes and therefore not taxable. This can be made either on your tax return or directly to the tax office.

If your employer sends a form P11D to HMRC respect of your benefits, then you will need to check your tax code. HMRC are very good at reducing tax codes for benefits in kind and very poor at removing them for s.336 claims. If you do not submit an Income Tax Return then incorrect amendments to your tax code will not be corrected. There is no doubt that HMRC are more reluctant to remove benefits in kind from tax coding notices now, than in previous years, possibly as a result of the drive to increase tax revenues.

The forms reporting benefits in kind (P11D) need to be submitted to HMRC by 6 July 2013 and must also be given to the employee by the same date. There are penalties for late submission of return to HMRC, which depend upon the number of employees the company has and the lateness of the returns. Certain benefits that are paid to employees are also subject to Class 1A National Insurance Contributions. Any contributions that are payable must be paid by 22 July 2013 to avoid the possibilities of interest and penalties.

It is possible to apply for the employer to apply for a dispensation from HMRC, so that certain expenses and benefits in kind can be omitted from the returns. Dispensations are granted where expenses are always for a business purposes and/or fall within certain limits.

For more information concerning benefits in kind and filing forms P11D contact Brian Russell on (01661) 872004 or by email: Brian.Russell@profitabilitygroup.co.uk.

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About the Author

Brian RussellBrian Russell FCA is a Chartered Accountant with over 35 years of experience working with owner managed businesses in North East England. He formed Russell & Co in 2000 to build upon his experience to provide high quality part time financial directorships for smaller companies particularly in Newcastle upon Tyne and Northumberland. Russell & Co is based in Ponteland.View all posts by Brian Russell →