Benefits in Kind and P11ds

benefits in kind

What are Benefits in Kind

Some costs are allowable for corporation tax but may be considered  benefits in kind for you personally. Benefits in kind include things like company cars , private medical insurance, subsidised loans and allowances paid in excess of the HMRC agreed rates (eg fuel allowance).

Any benefits in kind are reported at the end of a tax year on a P11d. These must be filed with HMRC by 6th July following the tax year in question. So any P11ds relating to the 2017/18 tax year must be with HMRC by 6th July 2018. If you don’t file these by 19th July 2018 then the company will incur a penalty of £100 per month for each 50 employees.

The impact on the individual is that the cash value of the benefit in kind is taxed on them personally as if it was salary. It is taxed either through a self-assessment tax return or via the individual’s next year’s coding notice.

The employer also has to pay Class 1A national insurance on the benefit (13.8% for the 2017-18 tax year).

Because of the changes to the dividend tax, there can be some small tax savings to be made by paying for a ‘perk’ out of the limited company rather than paying for it personally. However you would need to be sure there was a tax saving and that this saving outweighed the administrative hassle of completing and filing the P11d.

Benefits in Kind: An example

A company pays £1,000 for private medical insurance on behalf of its director and the director does not contribute anything towards the cost.

Assuming the director is on an annual salary of £8,164 and has already used all their basic rate of tax (i.e. their salary and dividends have hit £45k) the director will be taxed personally by way of £1,000 of the dividends that would otherwise be taxed at 0% being moved into the higher rate of 32.5% – the extra tax charge being £325.

This is because benefits in kind are taxed before dividends in the order of taxation. In this example the director’s salary of £8,164 still leaves £3,336 of the personal allowance which is currently being used by some of the dividends. So although there is no tax charge on the benefit itself, £1,000 of dividends are effectively pushed into the higher tax rate from the 0% personal allowance rate and charged at 32.5%.

The company will also pay the Class 1A National Insurance at 13.8% on the benefit being £138.

However, the company will receive corporation tax relief on the total cost of the benefit and the national insurance paid which would be: £1,000 + £138 = £1,138 x 19% = £216.22.

This makes the overall cost to director and company £246.78 calculated as follows:

£325 personal tax plus £138 Employer’s Class 1A National Insurance less £216.22 Corporation Tax savings

So what if the director was to pay for the benefit personally?

Well, let’s assume the director takes an additional £1,000 dividend to pay for the medical insurance. This additional dividend will create an additional personal tax liability for the director of £325 (as we’ve assumed his salary and existing dividends have already taken him to the £43k tax band) – being £1,000 at 32.5%.

So the cost of paying for the medical insurance personally is £325 while the cost of paying for this through the company is £235.40 – a saving of £89.60 if the company pays for the insurance.

The director will need to decide whether a tax saving of £89.60 is worth the administration of preparing and filing the P11d.

You will need to look at the numbers for your specific circumstances before deciding whether to put a benefit through your company or not. However you should remember to take into account the following:

  • Your personal tax charge on the benefit (and effect on dividend tax)
  • The company's national insurance cost
  • The company’s corporation tax saving on the cost of the benefit + national insurance

The deadline for the company filing the 2016/17 P11d is 6th July 2017 and any tax due must be paid by 19th July 2017 (or 22nd July if paid electronically).

Our eBooks cover this and many other topics.  Check them out here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Disclaimer

Spread the word!

Why Friendly

The Friendly Accountants are Alternative Accountants. Unlike traditional accountants, we look forward - not back.

We work with small businesses and contractors/freelancers who want to embrace the world of online software and the benefits this brings.

So if you'd like to find out more, just give a call or drop us an email - no hard sell.

Just friendly, professional advice!

Who we are

We're a husband and wife team with over 50 years experience of working with small businesses.

So we're in a unique position to understand the challenges that you face every day in your business.

And what's more, we're fully professionally qualified so you can be sure that your affairs are in safe hands.

Copyright 2016 by TFA Accountants Limited