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What Is A Benefit In Kind

Jody Pearmain
April 6, 2023

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What Is A Benefit In Kind

A benefit in kind (BIK) is a form of remuneration provided to employees by employers, which is not in the form of cash but takes the form of goods or services. BIK represents an important part of an employee’s remuneration package and is subject to certain tax rules and regulations.

This article will discuss what constitutes a BIK, how it is taxed, and how employers might use it as part of their reward strategy.

BIKs are usually provided by employers as noncash benefits such as company cars, private medical insurance or gym membership. These are considered taxable income and must be reported to the relevant tax authorities. The amount that employers need to report depends on the value of the goods or services they provide, which can be determined using several methods including market value or cost-plus pricing.

Employers should also consider any applicable exemptions when calculating their liability for BIKs.

Are Employee Benefits A P11d Or Taxable Benefit In Kind?

Employee benefits are a form of compensation offered to employees in addition to their salary or wages. Benefits can include non-cash items such as vacation time, health insurance, and other forms of compensation. Depending on the benefit, they may be subject to taxation and must be reported on the employee’s P11D.Benefits in kind (BIK) are taxable benefits that an employee receives from their employer that are not included in their salary or wages. Relevant life insurance is a type of BIK which provides tax efficient life cover for an individual employed by a company and is often used as an alternative to traditional group life assurance schemes.The tax treatment of relevant life insurance varies depending on whether it is provided under a trust arrangement or within a payroll scheme. However, corporation tax relief can be claimed for the premiums paid by the employer regardless of how it is set up. The cost of providing relevant life insurance policies is treated as a taxable benefit in kind for both employees and directors who receive them.It should also be noted that any lump sum death benefit payment is exempt from inheritance tax.

What Is A P11d?

A P11D is a form that employers need to complete for each of their employees who receive benefits in kind from the business, such as private medical insurance, company cars or other taxable benefits. The form details the value of these benefits, which is then used by HMRC to calculate the amount of tax owed on them. It is important to note that any benefit in kind received by an employee must be declared on their Self Assessment return and the relevant tax paid. The employer must also submit a P11D(b) form with the P11D forms, which details any class 1a national insurance contributions due. This is usually 13.8% of the total taxable value of all benefits in kind provided to employees during a tax year. It is important to note that HMRC can issue penalties if employers fail to declare taxable benefits or pay any class 1a national insurance contributions due on time.

How Is Group Life Insurance Taxed? Is It A P11d Benefit?

Group life insurance is a form of life insurance that is provided to an entire group of people, usually employees within a company. It can provide financial security and protection in the event of death or disablement due to illness or accident.

Generally, the employer pays all or part of the premium for this type of insurance and it is treated as a benefit in kind. As such, the premiums paid by the employer are subject to tax and must be reported on a P11D form. The employee will then need to include this amount on their tax return.

Depending on the type of policy, any benefits received may also be taxable. It is important for employers and employees alike to understand how group life insurance policies are taxed so they can plan accordingly.

Is Group Income Protection A P11d?

Group income protection, however, is usually not subject to a tax charge, and so it does not need to be reported on a P11D form. This type of policy pays out if an employee is unable to work due to illness or injury and can offer financial security when they are unable to generate an income from employment. It also covers additional costs such as medical expenses which may be incurred as a result of being off work for an extended period of time. An employer can choose to pay for the cost of the policy for their employee in addition to their salary, which would then be classed as a benefit in kind. However, this benefit will only be taxable if it has a cash equivalent value of over £500 per annum.

Is Group Critical Illness Insurance A Benefit In Kind?

Group Critical Illness Insurance (GCII) is a type of insurance that provides financial support in the event an employee is diagnosed with a serious illness or injury. GCII can provide coverage for medical expenses, lost wages, and other costs associated with treating the illness or injury. This type of insurance may also provide coverage for dependents in the event of death due to a serious illness or injury. The question arises as to whether GCII constitutes a Benefit in Kind (BIK). One argument is that it does not, as it does not directly benefit the employee financially; rather, it is provided as protection against potential loss due to ill health. On the other hand, some argue that since the policy pays out when an employee has to take time off work due to ill health, this could be seen as providing an indirect financial benefit. Ultimately, there are pros and cons to both arguments and it is up to individual employers to decide whether GCII should be considered a BIK or not.

Conclusion

Taxable benefits in kind are a complex area of taxation, with different rules and regulations for different types of benefits. Group life insurance is taxed as a P11D whereas group income protection and critical illness insurance are not. To ensure compliance with HMRC requirements, it is important to understand the tax implications of the various employee benefits on offer. Employers should seek professional advice to ensure they are aware of their obligations when offering benefits in kind to employees.

Information regards to taxation levels and the basis of reliefs are dependent on current legislation. Individual circumstances are not guaranteed and may be subject to change. The Financial Conduct Authority do not regulate trusts.

Jody Pearmain

Jody is the Managing Director and founder of My Key Finance Ltd. He has over 22 years of experience as a mortgage & protection adviser. He is an authority within the UK business protection market & specialises in key man insurance, relevant life cover and shareholder protection. Jody has written articles for Business Matters, Business Directory and has been featured in Forbes. He is Authorised & Regulated by the Financial Conduct Authority and is CeMAP qualified.

As editor and author of our blog, Jody hopes to educate and advise people with more in-depth information & guidance on life insurance and business protection.

Jody & his wife Lori featured in the BBC programme “The House £100k Built” He is also a keen Arsenal fan and loves nothing more than watching his son & nephews play football at the weekend.

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What Is A Benefit In Kind

Start saving money on Life insurance today

What Is A Benefit In Kind

Are Employee Benefits A P11d Or Taxable Benefit In Kind?

What Is A P11d?

How Is Group Life Insurance Taxed? Is It A P11d Benefit?

Is Group Income Protection A P11d?

Is Group Critical Illness Insurance A Benefit In Kind?

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