A comprehensive benefits in kind regime was introduced for the Years of Charge commencing 1996. It is the responsibility of an employer to make a return to the income tax authorities detailing all benefits in kind paid to each employee by 15 February following the calendar year in which the benefits were provided. If this deadline is not met an automatic penalty will apply. However, it is the responsibility of the individual employee to pay any tax relating to the benefits in kind received. Several benefits are specifically exempted from the new regime, such as group medical insurance premiums, pension contributions to an approved group pension scheme and associated life cover premiums. The tax liability arising on benefits is computed as follows:
- Accommodation is taxed at 15% of salary if unfurnished, 17.5% if furnished (with a provision to substitute the market rental value if this is lower).
- Motor vehicles not used exclusively in the performance of duties of employment are taxable according to scale rates.
- Other benefits are valued at 20% of the market value of the asset concerned at the beginning of the year (unless there is a valid reason for a lower valuation to be used), or at the date it was first made available to the employee if later. A deduction is allowed for any contribution made by the recipient.
- Where the benefit provided is a service, the chargeable benefit is the average cost to the employer of providing that benefit.
- If the employer pays the tax on behalf of the employee the taxable benefit must be grossed up by the amount of tax paid.
- Where the benefit is provided for only part of the year its value is prorated according to the number of weeks in the year in which the benefit is available to the employee. Any contribution paid by an employee to his employer relating to the benefit is deductible in calculating the chargeable benefit.
- The first £400 of non cash benefits, apart from the benefit associated with the provision of cars or accommodation, is exempt.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.