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Company Benefits: A Guide to the Most Common Benefits
Company Benefits: A Guide to the Most Common Benefits
Rebecca Russell avatar
Written by Rebecca Russell
Updated over a week ago


Benefits provided to employees are typically liable to tax and national insurance (NI).

If you’re registered to payroll the specific benefit type, employees will pay tax through the payroll. Otherwise, the value will be added to a P11D where the tax will be recovered through an adjustment to the employee’s tax code.

Depending on the benefit type, the benefit will either be subject to Class 1 NI, the same type of NI paid through the payroll by employees and employers, or Class 1A NI paid by the employer, which is reported on the P11D(b).

Alternatively, the employer might choose to pay both the tax and NI liability through a PAYE Settlement Agreement (PSA).

For a further explanation about the reporting and liability on P11Ds, payrolled benefits and PSAs, please refer to this Help Centre article.

Private medical insurance

Private medical insurance covers not only private medical insurance schemes but also health cash plans, critical illness insurance, dental insurance, and more.

The employer pays a premium for each employee within the scheme, which is the cost of the taxable benefit. Employees might make contributions towards the scheme, provided the contributions are deducted after tax, these contributions reduce the taxable benefit. The reduced taxable benefit results in less tax to pay for the employee, and less employer’s Class 1 NIC.

Employers might offer to include an employee’s dependents in the scheme. In this case, the employee typically makes additional contributions towards this cost. This works in the same way as contributions towards the employee’s own private medical insurance, where the contributions reduce the tax and Class 1 NI due to HMRC.

Employee contributions towards private medical insurance can be deducted before tax and national insurance, as a salary sacrifice deduction. However, this means the value can’t be reported as an amount ‘made good’ and therefore the taxable benefit is not reduced. The employee pays tax, and the employer pays Class 1A NI on the full benefit amount. Therefore the only saving is the employee’s Class 1 NI.

For further information about how to set up private medical insurance in PayFit, please refer to this Help Centre article.

Vouchers

There are two types of vouchers, those that are exchangeable for cash, and those that are exchangeable for goods or services.

Vouchers exchangeable for cash are another way of providing cash to an employee and therefore the full value is subject to tax and national insurance through the payroll, as with any other earnings.

Vouchers exchangeable for goods and services (non-cash vouchers) are subject to tax and Class 1 NI, that is employee and employer pay NI through the payroll. If the vouchers are payrolled, tax is calculated through the payroll. If vouchers are not payrolled, tax is calculated through the P11D. There is no Class 1A liability due on the P11D(b) as Class 1 NI is paid by the employee and employer through the payroll instead.

As the non-cash vouchers are subject to Class 1 NI through the payroll, an important consideration is how to deal with regular vouchers offered to employees who leave the company. For Class 1 to be processed through the payroll in their final month, you might prefer to stop issuing vouchers so that the final amount can be processed in their final pay. If you’re unable to recover the Class 1 NI through the employee’s pay, the remaining vouchers should be reported on a PAYE Settlement Agreement where the liability is paid by the employer instead.

For further information about how to set up credit cards or vouchers in PayFit, please refer to this Help Centre article.

Gym memberships

Employers might offer a gym membership to employees, usually through an agreement with a gym that can provide corporate or bulk discounts. The gym membership is a taxable benefit and is subject to Class 1A NI.

Employees might be asked to contribute towards the cost of the benefit and those deductions will be taken after tax and national insurance (net deduction). This contribution reduces the taxable benefit value.

The remaining taxable value is either reported through the payroll if the company is registered to payroll benefits, or through the P11D. In both circumstances, the value is included on the P11D(b) and is subject to Class 1A NI.

For further information about how to set up gym memberships in PayFit, please refer to this Help Centre article.

Electric vehicles

An Electric Vehicle scheme often includes a salary sacrifice deduction that can cover costs such as the lease, maintenance, servicing and insurance. It’s important to note that the benefit value of the car is still fully subject to tax and Class 1A NIC. The values contributed towards the cost of the car cannot be reported as payments ‘made good’ as they have not been deducted after tax has been calculated on the employee’s gross pay.

For further information about how to set up an electric vehicle in PayFit, please refer to this Help Centre article.

Tech scheme

A tech scheme, is a technology loan that is repaid as a salary sacrifice deduction, before tax and national insurance. However, once the loan is complete, the technology loan becomes an asset transferred which is a benefit to the employee. The value is subject to tax, calculated either through the payroll, if registered to payroll tech scheme benefits, or reported on a P11D. The benefit is also subject to employer’s Class 1A NI.

So although the loan amount is initially deducted as a salary sacrifice deduction, the overall savings are only the employee’s Class 1 NI.

Note: PayFit reports the value on the P11D in Section A - Assets transferred, but Section M can also be used which has the same impact on tax and NI.

Loans

Where an employee receives loans within a tax year that amount to more than £10,000, if the interest rate is zero, or below the HMRC’s official interest rate, this is classed as a ‘beneficial loan’. These are subject to tax through a P11D, and Class 1A NI through a P11D(b). Beneficial loans cannot be payrolled.

A second type of loan benefit is where the loan is written off, i.e., the employee is no longer expected to repay the outstanding loan amount. The written-off should either be treated as earnings, subject to tax and Class 1 NI through the payroll, or reported as a benefit through the payroll for Class 1 NI purposes (paid by employee and employer) and tax through the P11D. Note that as the employer pays Class 1 NI through the payroll, the loan amount is not subject to Class 1A NI.

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