Company providing taxable benefits in kind? Beware National Insurance.
Taxable benefits in kind – watch out for NI
There is a sting in the tail for companies that provide their directors or employees with taxable benefits in kind as part of their remuneration package.
Obviously, the directors or employees who receive the benefits will pay additional income tax if the benefits provided are chargeable to tax. An example is for the use of a company car.
The cost of the benefits is generally a deduction for the employer and this would reduce the employer’s corporation tax bill. However, it also triggers an additional, employers’ Class 1A National Insurance liability.
The amount payable is 13.8% of total taxable benefits provided.
Although this extra National Insurance payment is itself tax deductible, there is still a net loss of cashflow for the company which needs to be considered when planning remuneration packages for directors and employees.
As we have posted previously on this site, one way that a company can trim this additional NIC charge is to negotiate the repayment of a taxable benefit from affected employees.
Why on earth would you consider this?
Why would an employee consider repaying all or part of the cash equivalent of their benefit in kind? Doesn’t this diminish the value of their perks?
Certainly, this is not a strategy that you would use for all benefits provided but there are some situations where there are real win-win outcomes for both the employer and the employee.
A prime example is fuel provided to employees or directors for the private use of their company car.
You would need to crunch the numbers but it may well pay the employee to pay back the cash cost of private petrol provided. By doing this they will avoid the car fuel benefit charge and reduce their income tax by more than the refund of the fuel costs. At a stroke this also reduces the employer’s Class 1A NIC charges.
6 July deadline
The deadline for employees to make refunds of these types of cost to their employers is 5 July after the end the tax year.
If you are unsure if this would work for your company please call us today at THP Chartered Accountants, we can help you calculate if there would be an overall benefit to you if you were to adopt this idea. Whilst also providing a range of accountancy services to help the growth of your SME, from bookkeeping, payroll, tax planning and much more, with offices in Chelmsford, Cheam, Wanstead and Saffron Walden.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.