Benefit in Kind: It’s not something that all self-employed workers will have to think about, as it mainly comes into play if you employ staff for your business.
But even if you don’t employ staff for your self-employed business, it’s still worth taking the time to understand benefits in kind. Because as a self-employed worker, you can purchase benefits in kind for yourself, provided you buy them for business purposes.
So this is your essential guide to benefits in kind. We’ll explore what they are, with a few examples. We’ll then explore how benefits in kind might affect your tax, and how to report them to HMRC.
What is a Benefit in Kind?
A benefit in kind is a taxable item an employer might purchase or provide for their employees in addition to their salaries. This might be an employee perk, or it might be an expense the employee claims as part of their work.
If you’re a self-employed worker, you can purchase a benefit in kind for yourself. The items you purchase must be for business purposes, and you must declare them on your tax return.
Examples of Common Benefits in Kind
The following are all items that you might declare as benefits in kind to HMRC:
- Company cars
- Private healthcare
- Travel expenses
- Childcare vouchers
- Cycle to work schemes
- Accommodation expenses
- Gym membership
What Does a Benefit in Kind Mean for Tax?
Employers must declare any perks or benefits that have a cash value to HMRC. Why? Because HMRC may tax these items depending on your, or the employee’s, earnings. Some benefits and kind are not subject to tax. These include pension contributions, office facilities and equipment, meals, and personal gifts that aren’t cash, and that are not connected to the job (such as a bottle of prosecco at Christmas).
There are separate and complex tax rules for certain benefits in kind, such as company cars and childcare vouchers.
Check the HMRC site for a full guide to how different benefits in kind affect tax.
How to Report Benefits in Kind to HMRC
If you’re an employer, you need to report the cash value of your benefits in kind package to HMRC. There are two ways you can do this. One way is through submitting a P11D form each year. The other is to use a system called payrolling.
Payrolling essentially means adding all benefits in kind that incur regular monthly costs to the payroll system, which allows HMRC to collect tax and national insurance contributions via the pay as you earn (PAYE) system.
If you’re a self-employed worker, you must declare benefits in kind as part of your annual self-assessment tax return.
Here’s a handy benefit in kind tax calculator that’ll help you work out how much extra tax you’ll have to pay for your benefits in kind.
Tax Advice for Self-Employed Workers
We have a detailed guide to tax for self-employed workers.
It covers how much you need to earn to pay tax, while explaining how and when to file a tax return (if you’ve never done it before!).
Our guide also links to various additional resources, for advice on allowable expenses, what records you should keep, and how legal insurance can cover you against potential HMRC investigations.
Head here to read our guide to tax for self-employed workers.
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