Tax on company benefits
5 mins
Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.
What are company benefits?
If you get certain perks or benefits from your job, such as a company car or private medical insurance, you might be expected to pay Income Tax and National Insurance on these benefits just as you would actual income. What you would be expected to pay depends on the actual benefit you receive from your employer – our Expenses and Benefits section will give you more information on each benefit in more detail.
If the benefit you receive is classed as a taxable benefit, your employer will deduct the relevant amount of tax through the PAYE system, just as they do for your salary or wages. How much will be deducted depends on what the benefit is. Some benefits, such as childcare, are tax-free so you wouldn’t pay extra tax if you received that benefit from your company.
If you receive cash instead of the benefit, you will have to pay additional Income Tax and National Insurance because HMRC will consider that to be earnings rather than a taxable benefit.
How are company cars taxed?
If you have a company car and you use it for any private use for you or your family, you will have to pay additional tax. This includes if you use your company car for your commute to work and back. If your employer pays for the fuel you use in your company car, you will also have to pay tax if you use that fuel for personal journeys.
You are required to pay tax on the value of the car to you, so this value depends on how much the car cost to buy and which fuel it uses. The value of the car is reduced if you don’t have it full-time, if it has low CO2 emissions or you contribute towards its cost in some way.
If you’re not sure how much extra tax you will have to pay for your company car, you can use the HMRC company car and fuel benefit calculator.
You need to tell HMRC if any of your company car details change as this may affect the amount of tax you need to pay. This includes getting or giving back a company car as well as changes to the fuel provided by your employer, for example, if they start or stop paying for your private fuel use. If the change affects the value of the company car, HMRC will change your tax code so that you continue to pay the correct amount of tax on your company car.
What other kinds of benefits might you pay tax on?
Company cars aren’t the only taxable benefit you might receive from your employer. There are other taxable benefits which you might get as part of your job. When calculating the tax you owe for these benefits, your employer works out the value of the benefit to you. That value is what you will pay the additional tax on.
Loans
If your employer provides you with a low-interest or interest-free loan, you will have to pay tax on that loan if it is worth more than £10,000. You will be taxed on the difference between the interest rate which has been set on the loan by your employer and the official Bank of England interest rate.
You would also be taxed if the loan wasn’t actually to you but was to one of your relatives. HMRC would still consider that to be a benefit to you.
Our guide to company loans explains how your employer works out how much tax to deduct.
Living accommodation
If your employer provides accommodation for you or one of your relatives, you may have to pay tax on the value of the accommodation. The amount of tax you would have to pay depends on whether the accommodation cost more than £75,000. Our guide to accommodation explains how your employer works out how much tax they need to deduct from your wages.
If you need to accommodation so that you can do your job properly, you might not have to pay tax. An example would be an agricultural worker who lives on the farm.
If you send a Self Assessment tax return and you need help to work out the value of the accommodation you receive, you can use the HMRC living accommodation helpsheet to help you with your calculations.
Medical Insurance
If your employer provides you with private medical insurance, you will usually pay tax on the cost of the insurance premiums. There are certain health benefits which are tax-free, such as annual check-ups or medical insurance if you are required to work abroad. Our guide to medical and dental insurance to explains how your employer works out how much tax to deduct for any medical insurance benefits you receive.
Are there any tax-free company benefits?
There are a number of benefits which your employer could provide for you without you having to pay any additional tax as a result. These include meals in a staff canteen, a mobile phone for your job, workplace parking or hot drinks at work. Your employer can also provide you with a Christmas party without you having to pay for the value of the party, as long as it costs less than £150 per head and is open to all employees.
Your employer is also able to provide tax-free childcare support for employees, including childcare vouchers, to help staff with their childcare costs. For more information on childcare benefits, check out our guide to childcare.
Do you have to pay National Insurance on company benefits?
For most company benefits, you are not expected to pay additional National Insurance for the value of the benefit. Your employer would be expected to pay additional National Insurance contributions for providing them though.
However, if the benefits are paid to you in cash (for example, your employer reimburses you for the cost of you providing the benefit yourself), you would have to pay additional National Insurance on those because HMRC would consider them to be additional earnings.
This is also the case if you are given a gift by your employer which can be easily converted into cash. So, if the gift could be sold by you, you will have to pay National Insurance on the value of the gift.
What records do you need to keep?
If you receive any taxable benefits from your employer, they need to report this to HMRC by sending them a P11D form. Your employer might also give you a copy of this P11D form, but if they don’t they will still have to provide you with details of the taxable benefits they give you. You need to keep these details for 2 years after the end of the tax year they relate to.
If you or your family stop receiving any taxable benefits which HMRC has already been informed of, you need to inform HMRC. Similarly, if you start to receive new benefits, you need to inform HMRC – even if your employer has already deducted any Income Tax or National Insurance on your behalf.
You only need to tell HMRC about a company car once you actually start using it.
You can contact HMRC on 0300 200 3300 (textphone 0300 200 3319).
How can DSR Tax Refunds help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Refunds are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 26/10/2018.