HMRC reminds employers to review benefits in kind to stay compliant

HM Revenue & Customs (HMRC) has reminded employers that the rules surrounding benefits in kind agreed before 06 April 2017 are changing.

A benefit in kind is a benefit received by employees or directors in exchange for a portion of their salary. Before 06 April 2017, many benefits in kind were tax-free, meaning workers paid less tax than those receiving cash-only salary packages.

However, new rules introduced on 06 April 2017 meant almost all benefits in kind were now taxable, with some leeway given to benefit in kind packages entered into pre-April 2017.

Commenting on the new guidance, published in the latest payroll bulletin, HMRC said: “Arrangements entered into on or before 5 April 2017 kept their previous tax treatment until the earlier of a renewal or variation of the arrangement. Most pre-6 April 2017 BiKs moved into the new rules on 6 April 2018.

“Pre 6-April 2017 cars and accommodation move into the new rules on the earlier of renewal or variation or April 2021. Pre-6 April 2017 school fees have special rules, but all move into the new rules from April 2021.”

Likewise, employees who entered into an arrangement for cars, accommodation or school fees before April 2017, “need to review these contracts before April 2021”.

Taxable benefits in kind are “valued at the higher of the cash given up or the value under traditional rules”. Additionally, all previously non-taxable benefits in kind are now taxable, valued on the cash given up.

As usual, exempt benefits in kind – such as cars with emissions of 75g CO2 /km or less, pensions, pension advice, childcare and Cycle to Work – are not affected by the legislation.

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