Supporting Guidance: employer compliance: guidance by subject: expenses, benefits and pecuniary liabilities: benefits in kind
In addition to cash emoluments an employer may provide his employees with benefits in kind, for example a car or private health cover.
A more detailed explanation of benefits in kind can be found at EIM21000.
You should be satisfied that the employer has correctly
- accounted for tax and NICs where voluntary payrolling of benefits is operated
- returned the benefits in kind where no voluntary payrolling scheme is in place, and
- calculated and paid the relevant Class 1 or Class 1A NICs.
Where there are any discrepancies you should
- take them up with the employer
- give any necessary current year instruction
- explain how to deal with future benefits in kind
- consider corrective action or recovery for previous years.
For Tax Purposes
For non-payrolled benefits:
If the employee is a director you should see COG930060.
For employees (or where the limits outlined in COG930060 are not met) you should
- explain to the employer that any liability is strictly that of the employees but
- invite the employer to volunteer to settle on their behalf.
There are sound business reasons for HM Revenue & Customs to invite payment and for employers to volunteer settlement, for example:
- it avoids the probable employee dissatisfaction arising from receiving S9A enquiries when their belief was ‘my employer deals with my tax’.
- in extreme cases, it avoids the loss of employees, leaving to work elsewhere as a result of that dissatisfaction.
- while the amount of the tax is ‘grossed up’ to reflect (and only to reflect) the fact that by paying the employees’ tax the employer is giving them a further benefit, nobody is charged interest for the late payment of the tax
- except in the most serious cases - see COG914080 - penalties are not imposed on the employer in connection with the P11D error/failure or against the employee in connection with SA returns
- the grossed up tax can be deducted in calculating the employer’s profits for tax purposes.
From HM Revenue & Customs point of view, the Department is spared the cost of possibly uneconomic S9A enquiries.
Where the employer agrees to meet the liability see COG908060.
Where the employer refuses to meet the liability see COG908070.
For NIC Purposes
You should seek recovery from the employer for all employees including directors.
Where the employer pays tax on a grossed up basis you must also calculate Class 1 NICs payable on the grossed up tax.
Note: Recovery action should not be delayed pending any S9A enquiry.
Retired Former Employees
With effect from 6 April 2006 most non-cash benefits provided to retired former employees are liable to Income Tax. More detailed information can be found at EIM15000 to EIM15438.
PAYE does not apply to the provision of these benefits so the former employer has to report the non-cash benefit to HMRC - see EIM15200. If the former employer has not made a return of non-cash benefits to HMRC a penalty under S98 TMA70 is due.
Where you identify that benefits have been made available to former employees but have not been returned you may take action to
- recover the underpayment of tax in the same manner as you would for current employees.
The advantages to the employer in agreeing a voluntary settlement may be less obvious when there are no ongoing employment issues. In such circumstances you should remind the employer that a potential penalty offence has been committed by failing to return the non-cash benefits to HMRC.
Note: Non-cash benefits provided to former employees do not attract Class 1A NICs but Class 1 NICs are payable on any grossed up tax depending on the circumstances of the individual or individuals - see NIM08410 for guidance on calculating Class 1 NICs for former employees.
Pre April 2009 please go to COG914080.