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Knowledge Base

Benefits in Kind (BIK)

01 January, 2009

If your employer provides you with non-cash benefits - such as a company car or medical insurance - you may have to pay tax on them.

The new rules and changes will largely depend on the individual taxpayers circumstances, with ‘benefits in kind’ being available to a vast majority of directors and employees, and predominantly refer to those with company cars. The new rules are based on the manufacturer’s list price, the fuel used and the carbon dioxide emission.It is therefore suggested, that as the income tax implications are complicated, taxpayers should clearly understand the rules laid down by the HMRC when preparing their self assessment tax returns in order to make the correct decision with regards to their remuneration package.

If you're a company director, or your pay - including the value of your benefits - is £8,500 or more in a year, then you'll always have to pay tax on any benefits you get. You may have to pay tax on some benefits - such as living accommodation that's provided by your employer - no matter how much you're paid and whether or not you're a company director.

Benefits you might have to pay tax on:

Company car

Normally, if your employer provides you with a car, you'll have to pay tax on the value of the benefit. The value depends on several things, such as:

  • The car's list price, including any accessories
  • Its carbon dioxide emissions
  • The type of fuel it uses

The value of the benefit may be less if the car is unavailable for part of the year or if you pay something towards its cost. If your employer provides you with fuel to use for your private motoring, you'll have to pay tax on this as a separate benefit.

Company car and car fuel benefit calculator

When a company car is made available for the private use of an employee a 'benefit in kind' value is calculated in relation to the car, and the fuel if that is also made available for private use.

The calculator allows you to calculate the 'benefit in kind' value of a company car and, if appropriate the car fuel benefit provides an indication of the income tax you would be liable to pay for the provision of company car and car fuel benefit.

The calculator allows calculations for the years 2002-03 to 2009-10 inclusive, but 2009-10 results are provisional until any Budget 2009 changes there may be are included in the calculator. The calculator is available on the HMRC website at the bottom of the page: Company car benefit calculator.

There are a number of changes to the rules for calculating car benefit from 2008/09.

Changes to the car benefit rules in 2008/09

The car benefit charge for a full year is obtained by multiplying the price of the car for tax purposes (in most cases, its list price plus accessories less capital contributions) by the 'appropriate percentage'. A more detailed guide is available for employees in the HS203 Self Assessment help sheet (PDF 88K) and for employers in booklet 480 (PDF 368K).

Changes to the rules for calculating the appropriate percentage from 2008/09

The appropriate percentage is based on the car's approved CO2 emissions figure. There are some supplements and reductions to take account of different fuels.

The rules governing the calculation of the appropriate percentage change in three ways with effect from 2008/09.

The lower threshold, the CO2 emissions figure which determines the appropriate percentage for all cars, is reduced from 140 to 135.

A new '10 percent band' is introduced for cars with a CO2 emissions figure of exactly 120 g/km or lower, the normal rounding does not apply to this figure. They are called 'qualifying low emissions cars' in the legislation, QUALECs for short. Diesel adjustments apply to QUALECs as to all others, but that is all; no other reduction which is available on other cars applies to QUALECs. As a result, the only acceptable figures for the appropriate percentage for QUALECs are 13 percent - cars to which the diesel supplement applies, and 10 percent - all other cars. So there is no misunderstanding, electric-only cars are excluded from these arrangements and retain their net appropriate percentage of 9 percent.

There is a new 2 percent reduction for cars manufactured to be able to run on E85 fuel, a mixture of 85 percent bio-ethanol and 15 percent unleaded petrol. They will be known as type G on forms P46 (car) and P11D. Other cars cannot run on this mixture without damaging the engine.

Loans at low interest rates

You may have to pay tax on this benefit if your employer lends you more than £5,000 interest free, or charges you less than the official rate of interest on a loan. The value of the benefit you'll have to pay tax on is usually the difference between:

  • The interest you actually pay
  • The interest you would've paid at the official rate

You may also have to pay tax on the benefit if your employer lends money to one of your relatives.

You won't have to pay tax on the benefit of an interest free or low interest loan from your employer if the total of all loans provided in a year is less than £5,000 or less.

Living accommodation

If your employer provides you - or one of your relatives - with living accommodation you may have to pay tax on the benefit. There are different ways of working out the value of the benefit you'll have to pay tax on, depending on whether or not the accommodation cost more than £75,000.

You may not have to pay tax on the benefit if you're provided with the accommodation so you can do your job - or because it helps you do your job better.

You won't have to pay tax on the benefit of an interest free or low interest loan from your employer if the total of all loans provided in a year is less than £5,000 or less.

Medical insurance

If your employer pays for your medical insurance, you'll usually have to pay tax on the value of the benefit. This is normally the cost of the insurance premiums.

Your employer can give you some benefits that you won't have to pay tax on, such as:

  • Insurance to cover treatment when you're working abroad
  • Annual check-ups for you
  • Tax-free benefits

In certain circumstances you can get some benefits without paying tax on them.

Tax-free benefits can include:

  • Meals provided for all employees in a staff canteen
  • Drinks and snacks at work
  • A mobile phone
  • Parking at or near your workplace
  • Christmas parties
  • Childcare
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