Unkind effect of a benefit in kind

Check how much you’re paying in hidden taxes

Our tax system is notoriously complex.

Take income tax, for example. The headline numbers, as a general rule, are that the first £12,570 of our income is tax-free. The next £37,700 is taxed at 20%, and income over £50,270 is charged at 40%.

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

But it’s not just on our salary and bonuses that we pay income tax – we also pay it on any benefits in kind (BIK) or “non-cash benefits” that we receive at work, such as a company car, medical insurance or an interest-free loan to buy a train season ticket.

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

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 – so they are not free.

Make sure you 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 correct amount.

As the cost of living skyrockets, we’re all looking to save some money so it’s important to look at what your benefits cost you and ask yourself: “Is this good value for money?”

Company cars are one common example where the answer may well be no. These can be extremely expensive, and the tax you’ll pay on them is partly based on CO2 emissions.

You may be able to switch to a lower emission car, or give it back and take a cash payment instead.

I also regularly meet couples who are both members of their employers’ medical insurance schemes AND they are insured on each other’s schemes too.

This means they are paying tax on a higher premium unnecessarily. Instead, it’s best to consider having only the lower income taxpayer of the couple using this benefit.

Just because something has been provided to you, it does not mean it’s necessarily good value so be aware of the tax you’re paying on your BIK…

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