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May 2013

Guidance To Benefits In Kind - Perks For Employees And Employers

Many in business offer benefits in kind to their staff, but when the time comes to dealing with tax returns it can be unclear which benefits are tax free and which are tax deductible. As an employer it's worth considering which benefits are straight forward perks for staff and which ones will cause them additional effort and potential bills at the end of the financial year.

Christine McGuigan, Taxation Manager at chartered accountancy firm Hall Morrice has vast experience assisting clients with such classifications. She classes Benefits in Kind as, "benefits which employees or directors receive from their employment. They are non-monetary perks and aren't included in a salary cheque or wages. These days fringe benefits often enhance the package on offer to an employee at the point of employment or can be elective schemes employees sign up for." But before offering a benefit to staff it's imperative to understand its tax implications, and fully explain the tax scenario to the team so employees can make educated choices about the perks they choose and how they complete their tax return. An unexpected tax bill for a fringe benefit can prove a real dampener for staff, as well as a financial burden.

Christine explains, "For tax purposes, the word earnings means any salary, wages or benefit that is of direct monetary value to the employee, but some benefits in kind are tax-free and shouldn't be entered on a tax return. Common examples of tax-free benefits include pension contributions, canteen meals, in-house sports facilities, counselling services for employees facing redundancy and moving expenses (up to £8,000 per move).

"Another common query surrounds gifts and social events. Personal gifts (unconnected with the employee's job) such as wedding and retirement gifts are tax-free, as are gifts that an employee receives from someone other than the employer, such as seats at a sporting or cultural event, providing that these outings aren't worth over £250 in a single year.

"Other perks can include bicycles and cycling safety equipment for employees to get to and from work, and workplace parking for bicycles and motorcycles."

For a full list of tax-free benefits it's worth consulting your accountant or HMRC (Her Majesty's Revenue and Customs) as knowing what should be declared as tax deductible can ensure you keep on the right side of the tax inspector.

A common potentially taxable perk is a company car. Christine McGuigan explains, "Tax is payable on a company car if it is available for private use. In nearly all cases, private use includes journeys between home and work, but you can pay lesser tax charges on cars with lower C02 emissions and cars that can run on alternative fuels. Bear in mind that there is no tax charge if the car is powered only by electricity so there are rewards for being more environmentally friendly.

"Medical insurance is offered as a fringe benefit more and more these days, and it is taxable for all employees, except those earning under £8,500 a year.

"Another common benefit is receiving a perk direct from the company you work for, such as an air hostess receiving discounted flights or a shop worker being offered reduced price goods from their store. Again these are taxable unless you're a lower earner on less that £8,500 a year.

"And if you're lucky enough to receive a free holiday from work you will have to pay tax on its value!"

When it comes to employees completing their tax returns, if they do receive taxable benefits, they must enter the value of them on the Employment page of the tax return for the relevant year. The employer also has to make a return to HMRC with details of any benefits in kind given to the employee.

As with many tax issues there can be exceptions and fine details to consider. Hall Morrice can offer practical advice and assistance regarding Benefits in Kind, as well as a wide range of financial guidance including accounts, audit, business advisory, corporate finance and taxation services.

Hall Morrice, founded in 1976, is one of Scotland's leading independent firms of chartered accountants and has offices in both Aberdeen and Fraserburgh. Based at 6 & 7 Queen's Terrace in Aberdeen, Hall Morrice can be contacted on 01224 647394 or at

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