The announcement in the budget that the income tax thresholds and the personal allowance will be frozen for next few years isn't seen as an attractive deal for those who pay income taxes. This is because since the thresholds will not change with the inflation rate while the salaries do increase over the time, this will result in people being pushed in the higher income tax brackets.
Employees might be looking for packages which include both the salary and some benefits in Kind which might make their salary packages a bit tax efficient.
To attract good talent it has become increasingly important to include employee benefits in the salary package.
What are the Benefits in Kind?
Benefits in Kind which are sometimes also referred to as perks or fringe benefits are the benefits that are given by your employer to you but it in addition to your salary. It works in a way that you will have access to the benefit which is actually paid by the company.
Will I be paying Taxes on the Benefits in Kind?
Not all Benefits in kind are treated in the same way for tax purposes. Some are taxed and some are not taxed.
If your employer is offering you the following perks you wont have to pay income tax on it so you will be saving some money there. Some tax free benefits are:
- Child care support
- Mobile phone
- Hots drinks at work and meals in a canteen as well.
However, you will be paying tax on the taxable benefits which will include paying tax on the cost of the insurance premiums if you are getting the medical insurance covered by your employer.
If your employer provides you with loans of more than £10, 000 at reduced interest rate or zero interest rate you will be paying tax. In this case the tax will be paid at the difference between the interest rate that the market is providing and the interest rate that your employer provided to you.
You will be paying tax on the company car which is being used privately. You will also be paying tax on the if your employer is providing you with the living accommodation.
The general rule of thumb is if the company is providing you with the benefit and you are using it for personal use(with the exception of the small amounts that you will be spending on your meals and hot drinks at work) taxman will want you to pay them some cost.
Do Benefits In Kind save you any taxes?
When an employee is paid a salary 3 types of taxes are paid
- Income tax
- Employee National Insurance
- Employer National Insurance.
With the introduction of the tax free employee benefits you wont be paying income tax and the NI as well. If an employee is being provided with the monetary benefit they will have to pay income tax on it however, they wont have to pay NI on it. On the other hand employer will be liable to pay NI on it.
An employer can be benefitted as the Benefits in Kind are treated as an expense and can be deducted from the revenue. This can help them lower the Corporation tax bill.
The tax rules for each benefit are different and they can get a bit complicated as well. Its always a good idea to consult an accountant . We at Taxaccolega are affordable accountants in Croydon and we can help you with your income taxes, property taxes, inheritance tax as well. Call us at 020 8127 0728 and we will be there to help you.
Source: www.gov.uk