Are your benefits really of benefit?

Check how much the ‘perks’ of your job are worth

The British tax system is notoriously complex.

Take income tax, for example. As a general rule, the first £12,500 of our income is tax-free; the next £37,500 is taxed at 20%; and income over £50,000 is charged at 40%.

There’s a higher rate of 45% for earnings over £150,000, and we pay National Insurance on top.

But we don’t just pay income tax on our “cash income”, such as salary and bonuses – we also pay it on benefits in kind (BIK) or “non-cash benefits”, such as company cars, medical insurance or interest-free loans for train tickets.

These are summarised on a P11D form – but be aware that they can be deceptively unkind in tax terms, despite their name.

Monitoring BIK

If you receive any non-cash benefits at work, you should by now have received a P11D from your employer (the deadline was July 6).

This shows the value of any taxable benefits in kind you have received. And even though your employer may make payments on your behalf, you pay income tax on the value of these benefits: they are not free.

Unless your employer has agreed otherwise with HMRC, the P11D should also include any payments you have received from your employer as reimbursement of certain business expenses you may have paid personally – although there is an exemption for equipment purchased in relation to working from home due to coronavirus in 2020/21.

Keep your P11D safe because you may need it to complete a tax return or to claim a repayment of tax.

It can also help you review your tax code notice when you receive one from HMRC, to check you’re paying the

Just because something is provided to you, it does not mean it’s good value

correct amount, so file it carefully. It’s good to be able to put your hands on your P11D when you need it – for example, when you arrange a mortgage.

Reviewing BIK

Look at what your benefits cost you and ask “Is this good value for money?”

One common example where the answer may well be “no” is company cars. The tax you pay on them is partly based on CO2 emissions so you may be able to save by switching to a lower emission car, or give it back and take a cash payment instead. Also, I often meet with couples who are both members of their employer’s medical insurance scheme AND they are insured on each other’s schemes.

This means they are unnecessarily paying tax on a higher premium.

Instead, it’s best to consider having only the lower income taxpayer of the couple have this benefit.

Just because something has been provided to you, it does not mean it’s good value – so be aware.

For more money planning ideas, search for the Money Planner podcast.