Offering benefits or perks to your employees isn’t a legal requirement, but if your business can afford to, then it can be a good way to show your appreciation.
Common examples of staff benefits might include gym membership, health care, or the cost of their daily travel. Providing perks like this can be good for workplace morale, but it’s entirely up to you whether or not you decide to go ahead.
It’s generally something which benefits the employee personally in some way, rather than solely something they need to do their job.
Before making any decisions it’s crucial that you understand the potential tax implications of offering perks to your employees. Known in the tax world as benefits-in-kind, this might impact both you as the employer, as well as your employees.
Is it worth offering benefits in kind to my staff?
Staff perks are a way of adding value to what staff receive from you, on top of their existing pay. Combining these so-called fringe benefits with a base-line salary can help you build a very attractive employment package, which in turn can be a valuable tool for recruitment and staff retention.
Attracting great staff with a strong recruitment package
The recruitment market can be very competitive, especially if you have niche roles or gaps in your expertise to fill. It’s why some employers decide to make the idea of working for them as attractive as possible. This usually involves offering a competitive salary, but adding other value, such as perks, can also help sway things in your favour.
Retaining great staff with perks
Everyone likes to feel like they’re being recognized, so showing appreciation to existing employees can help you keep them around for as long as possible.
Make life easier for your employees
A good example of this is providing a company car to an employee whose role requires a lot of travel. It shows that you’re thinking of their comfort and wellbeing, and can be a good option for them if they don’t need to up-front the cost of travel before claiming it back later.
What are the tax implications of benefits in kind?
These so-called fringe benefits might not take the form of cash, but they do have a financial value, and as such tax may be subject to tax and National Insurance. This means that employees can’t simply be paid in perks rather than their normal wages as a way of avoiding tax!
The slightly confusing part about BiKs is that some of them are taxable, and some aren’t.
For instance, work-related training or safety clothing and equipment your employee needs to do their job may not be classed as a benefit!
How to report benefits in kind with a P11D
You might sometimes hear these staff perks referred to as P11D benefits because of the name of the form used to report them to HMRC.
If you have staff and you offer them any type of perk, you must submit a P11D to let HMRC know about it, including the relevant dates and values of all benefits in kind provided. You can do this:
- Via your own payroll software
- Using HMRC’s PAYE Online service once you’re registered for PAYE
- Through the post
If you already pay tax on employee benefits via your payroll system (like you might do with any deductions you make on their wages) you won’t need to submit a P11D for them.
However, whether you already deduct and pay tax on employee benefits through your payroll or not, you do still need to be aware of P11D(b) forms.
What is a P11D(b)?
A business owner is required to submit a P11D(b) form at the end of each tax year to let HMRC know how much Class 1A National Insurance needs to be paid. This is because employers make National Insurance Contributions (NICs) on the value of BiKs their employees receive, including company directors.
A P11D(b) also summarises each employee’s individual P11D.
Do I need to tell my staff about the P11d form?
You don’t legally need to provide employees with a copy of the BiKs information you submit, but we do recommend it. If there are any issues with their pay or tax record, it makes things much simpler to sort out!
Reminder: Don’t forget to keep all your receipts and expense forms organised, filed away and accessible for a minimum of six years as part of good bookkeeping and accounting practices.
Feeling stuck? We’d recommend seeking the support of a qualified accountant. Compare accountancy packages here to get started.