Company Benefits & Expenses

You should also be aware of something called: Company Benefits & Expenses - as these too can significantly affect how much Income Tax and/or National Insurance you have to pay.

Company Benefits

Beyond their regular salary, employees may also receive certain Perks or Company Benefits, as part of their wider Company Benefits Package

Examples of such benefits can include:

• Income Protection
• Health Insurance
• Life Insurance
• Dental Insurance
• Employee Referral Bonus
• Gym memberships or discounts
• Relocation assistance
• Use of a Company owned car
• Childcare vouchers

The main thing to note is that some of these extra benefits may be considered as taxable benefits, by HMRC, and count as extra earnings, and thereby attract additional Tax, and National Insurance payments.

Benefits can be either exempt or non-exempt:

Exempt

Non-exempt

Exempt

Exempt benefits are not considered as extra earnings to the employee. These expenses are usually needed by the employee to do their job, and will instead be considered by the company as normal business expenses.

Examples include:

• Business travel
• Phone Bills
• Business Entertainment Expenses
• Uniform and tools for work

As these are business expenses (with no private element), and not additional employee earnings, no extra Income Tax or N.I. needs to be paid.

The other benefit of exempt benefits is that they do not have to be reported by companies to HMRC. (The rule is otherwise for a company to report all employee expenses & benefits, annually, to HMRC through a P11D/P9D form, for each employee)

Non-exempt

For non-exempt benefits, two things need to be considered: (i) the type of benefit, and (ii) who arranges and pays for it:

Type of Benefit?

Anything that does not count as a business expense will almost always be considered as a private expense of the employee. For example, expenses for things not needed by an employee to do their job, or expenses incurred by the company to pay for an employee’s own private affairs - will be non-exempt, and therefore taxable!

When a benefit is taxable, how much needs to be paid in Tax and N.I. will depend on the benefit. The rules around this are very complex and specific, and not easily generalizable, but in general, (if one were to generalise!), the cash equivalent amount (i.e. value of the benefit) will be calculated, and then added to an employee’s salary, as other earnings, before calculating any Income Tax and/or N.I. liabilities.

Examples of non-exempt (taxable) benefits include:

• Private Medical Insurance
• Private Dental Insurance
• Cash bonuses
• Certain types of Living Accommodation
• Private use of a Company Car
• Life Insurance

Who Pays?

One last thing that needs to be considered, when an expense is non-exempt, is who actually pays for the benefit, as this affects how much Tax and/or N.I. needs to be paid.

Employee pays, then gets re-imbursed:

Generally speaking, if an employee pays for a benefit (and is later reimbursed), then the amount of money the employer reimburses will be considered as other earnings to that employee.

Extra Income Tax (PAYE) and N.I. (usually both Employee’s and Employer’s N.I.). will then need to be paid on these other earnings.

Company pays directly:

If, however, the company, rather than employee, pays for the benefit, then, (generally speaking), only the company will have to pay extra Class 1A National Insurance, and no additional PAYE would be payable (…but this is not always the case)

The company will also, in its own books, generally when they pay for the expense directly themselves, record the expense to the most relevant expense line, rather than to any salary expense lines. (…again, this is not always the case)

Summary:

We provide an overview below:

Additional forms you may have to submit

P11D – filed by Company

The P11D is a tax form needed for reporting any non-exempt (and therefore taxable) benefits to HMRC. Companies need to fill out a P11D form for each employee earning more than £8,500 per annum, and then submit these to HMRC annually. Exempt benefits do not have to be reported through the P11D.

P9D – filed by Company This is the same as the P11D, but needs to be reported on for employees earning less than £8,500 per annum.

P87 – filed by Employee

When employees pay for things out of their own pocket (to carry out a genuine business-related activity), for which the company only partially reimburses them, employees can claim personal tax relief against the element they are not reimbursed for. This can be done via a P87 tax form.

An example of when this might happen is given below: