Benefits in Kind

What does the term 'benefit in kind' mean?

This term refers to benefits received by employees from employers in non-cash form which, in accordance with Part V Chapter II Income and Corporation Taxes Act 1988, are subject to PAYE tax (and may be subject to national insurance contributions also).

From April 2000, employers' National Insurance contributions (Class 1A) are payable on most benefits payable to employees.

How do benefits in kind arise?

An employee may have a contractual right to receive payment of a benefit e.g. the provision, in special circumstances, of accommodation and accommodation related benefits. More commonly however, they arise either intentionally or unintentionally because of arrangements made at departmental level.

The purpose of this section of the handbook is to identify the types of taxable benefits in kind that can arise in order that management and employees alike are fully aware of the taxation and national insurance contribution implications that may arise following the provision of these benefits.

Specific Benefits in Kind

The following list is not exhaustive, however it does include the main type of taxable benefits in kind that employees might receive in the course of University employment.

  • Staff Entertaining
  • Use of University assets at home
  • Sale of University assets to employees
  • Provision of clothing and footwear
  • Accommodation and related benefits
  • Use of University vehicles
  • Private use of telephones

Staff Entertaining

A taxable benefit in kind charge arises on an employee when he or she is provided in the course of employment with food or drink free of charge and the circumstances surrounding the provision of such food or drink is not in connection with business travel, or entertaining third parties for business reasons.

Internal Staff Entertaining

It is necessary to consider separately internal and external staff entertaining. Internal staff entertaining arises at staff only meetings, functions, etc where food or drink is supplied by Catering Services.

HMRC has accepted that the University effectively subsidises Catering Services. This being the case, although, in the first instance, a taxable benefit in kind arises, the University is able to take advantage of an Extra Statutory Concession (A74) which stipulates that tax is not charged on the benefit to an employee arising from free or subsidised meals provided by an employer on the employer's business premises, provided the terms of the concession are strictly complied with.

No tax charge will therefore attach to University employees who are provided free of charge with food or drink supplied by Catering Services at staff only meetings, functions, etc as long as a subsidy remains in place.

We can advise also that no tax charge will arise where University employees are supplied free of charge with food or drink while attending staff only meetings in the College Club.

External Staff Entertaining

In contrast, however, because the Extra Statutory Concession, referred to above, applies to internal staff entertaining only, a tax charge therefore attaches to a University employee provided with food and/or drink free of charge at a staff only meeting, function, etc outwith the University's business premises in circumstances not in connection with business travel, or entertaining a third party (or third parties) for business reasons.

However, the University in recognising the necessary business element inherent in much of this type of expenditure, has agreed to settle past and future liabilities in this respect direct with the Inland Revenue on behalf of University employees.

Heads of Department therefore, in authorising expenditure of this nature, are asked to bear in mind the additional tax burden that external staff entertaining places on the University and are required to be satisfied therefore that there is a reasonable business case for the expenditure before authorising it. Expenditure of this kind should be modest and should occur irregularly.

Persons making an expenses claim for external staff entertaining costs are required to enter the category code RR00 (staff entertaining - external suppliers) on the front of the claim form against this type of expenditure and also enter on the external entertainment form the names of each person attending the meeting/function and also the University Department to which each employee belongs.

For clarification, no tax charge will arise in respect of external staff entertaining where a third party, for business reasons, attends a meeting, function, etc that would otherwise comprise only University staff.

Use of University Assets at Home

Provided permission is obtained, University assets such as personal computers, modems, etc. may be used by University employees at home.

Employees should note that using employer provided computers at home for private purposes creates a benefit in kind taxation charge. Employees are liable to be taxed on the benefit at 20% of the market value of the asset.

However, from 6 April 1999, the tax charge is removed for up to £2,000 worth of computer equipment. The excess will still be taxed as a benefit in kind.

In order to minimise the risk of possible further investigation by HMRC, it will be helpful if Departments can provide the necessary returns certifying, for each individual in the department using a University owned asset at home (with a value in excess of £2,000), that no private use has occurred during the year in question.

Sale of Assets to Employees

The University's computer equipment disposal policy precludes the direct sale of computer equipment to University employees.

Further details about this policy and the reasons for its implementation can be obtained on the web by accessing:

Information on Waste Electrical and Electronic Equipment (WEEE) can be found at:

Provision of clothing and footwear (including uniforms)

The provision of necessary clothing (including uniforms) and footwear by the University to employees can give rise to a benefit in kind tax change.

Provided however all articles of clothing (and footwear) clearly have affixed to them the University's motif, then the risk of a benefit in kind charge is minimised. The motif should be visible, reasonably large and should be non-detachable.

In addition, procedures have been put in place in Estates & Buildings; Central Services, Sports & Recreation, the Hunterian Museum and Art Gallery, and the Library, with the aim of demonstrating to the Inland Revenue that clothing etc issued to employees belongs to the University at all times and that no personal use occurs.

Departments not on the above list who issue clothing and/or footwear to employees are invited to contact to Mr Jim Ross, Head of Pay and Pensions, Finance Office, in order to institute similar procedures in their departments.

Please note that allowing staff to purchase clothing, etc either by providing an allowance or reimbursing a subsequent expense claim will render the amount liable to tax and national insurance contributions.

Accommodation and related benefits

Except in the circumstances outlined in (1) (2) and (3) below, where an employee is provided with living accommodation by his or her employer, the employee is liable to tax on the value of the accommodation provided. This also applies where, by reason of an individual's employment, accommodation is provided for members of his or her family or household.

An additional income tax charge applies where an employee is provided with living accommodation which costs more than £75,000.

However, no tax charges in respect of the provision of living accommodation will arise where

  1. it is necessary for the proper performance of the employee's duties that he or she should reside in the accommodation; or
  2. the accommodation is provided for the better performance of the employee's duties and the employment is one of the kinds for which it is customary for employers to provide accommodation for the employee; or
  3. there is a special threat to the employee's security, special security arrangements are in force and the employee resides in the accommodation as part of those arrangements.

The question of whether an individual satisfies the exemption criteria ("necessary" or "better performance" and "customary") is subjective and the tests applied by HMRC are very demanding.

The provision of benefits or facilities connected with living accommodation are taxable on the individual - such expenses include heating, lighting, garden maintenance, domestic or other services, and repairs and decoration costs. Please note that structural alterations and additions to the premises and expenditure which would normally be a landlord's responsibility are not considered taxable benefits.

Details of accommodation and accommodation related benefits provided to a University employee must be forwarded annually (by the end of May at the latest), by the department to which that employee belongs to to Mr Jim Ross, Head of Pay and Pensions, Finance Office.

Use of University Vehicles

The rules in this section for cars apply equally to vans.

Where a car is made available for the private use of an employee, a benefit in kind charge will arise.

A car is not considered to be available for private use if it is a "pooled car" therefore, in this event, no taxable benefit in kind charge will arise.

A car only qualifies as a pool car if all the following conditions are satisfied:

  1. it is available to, and used by, more than one employee and is not ordinarily used by any one of them to the exclusion of the others, and
  2. any private use by any employee is merely incidental to its business use, and
  3. it is not normally kept overnight on or near the residence of any of the employees unless it is kept on premises occupied by the provider of the car (or van).

Meaning of "merely incidental to"

The expression "merely incidental to" imposes a qualitative rather than a quantitative test. If private use is independent of the employee's business use it does not satisfy the test, whereas if private use follows from business use, then it does.

An example coming into the former category would be where an employee takes a car home in order to make an early start on a long business journey the following morning. Where the journey could not reasonably be undertaken the next day starting from the normal place of work then the journey from work to home, is in this case, subordinate to the lengthy business trip the following day, and is undertaken to further the business trip. In short, it is merely incidental to its business use. A reservation is necessary, however, because if the same circumstances occurred frequently, then the third necessary condition described above would not be met!

Meaning of "not normally kept overnight"

It is accepted that a car is "not normally kept overnight" at or near the homes of employees if the number of occasions on which it is taken home by employees does not amount to more than 60% of the year. But where a car is garaged at employees homes on a large number of occasions, although for less than 60% of the year, it is unlikely that all the home to work journeys would satisfy the "merely incidental" test.

A pool car certificate is required to be completed annually by the appropriate departmental head for each pool car or van under his or her control and sent for the attention of Mr Jim Ross, Head of Pay and Pensions, for onward transmission to HMRC.

Car Benefit Charge

Where a benefit in kind charge arises in respect of a company car available for private use, the charge may be comprised of two components (1) the car benefit charge and (2) the car fuel charge.

The car benefit charge is calculated at 35% of the "price of the car for tax purposes". But this may be reduced to take account of

  • the business mileage the employee travelled in the car during the year
  • the age of the car at the end of the year of assessment
  • periods when the car was unavailable
  • payments that the employee made for the private use of the car

Car Fuel Charge

Where fuel is provided for a company car, 'scale charges' will normally apply to tax the fuel provided. The 'scale charge' in respect of such fuel will be in addition to the car benefit charge and will run automatically unless fuel was made available for business travel or it is established that the employee was required to make good all the fuel provided for private motoring and that he or she did so.

Private Use of Telephones

The University reimburses the cost of business calls made from private telephones if the calls are identified on an itemised telephone bill. For certain employees, a proportion of the cost of telephone rental is also reimbursed.

Where the University has agreed to pay a portion of an employee's telephone rental costs, a taxable benefit in kind charge will arise.

Employees who have such an arrangement with the University, normally receive reimbursement by submitting an expense claim to Payroll Section. In order to comply with its obligations, the University will include the claim for telephone rental in gross pay and will deduct tax and national insurance before reimbursing the claim.

University owned mobile phones

From 6 April 1999, employees are no longer taxed on the private use of mobile telephones provided by employers.

Taxation procedure

In the event of a benefit in kind charge arising, the University as your employer, has a responsibility to inform both you and the Inland Revenue about the existence and the extent of the particular charge. The University does this by providing, if appropriate, both you and HMRC with a copy of form P11D. The form P11D is produced annually and relates to transactions occurring during the fiscal (tax) year to 5 April. Regulations dictate that the University must provide you, if appropriate, with a form P11D on or before 6 July each year in order that you can organise your personal tax affairs.