nanny / au pair: benefits in kind

[Strix]

Can anyone help me define "benefit in kind"? I heard somewhere (don't remember where, probably on here) that if something is required for the employee to carry out his.her job, then it is not a benefit in kind.

So, I'm trying to confirm that the following will not qualify as benefits in kind:

mobile phone - required so she can e-mail/text me during the working day and also so she can arrange playdates, be contacted by the school, etc.

gym membership - required to take kids to their activities, take them swimming, play tennis with them, etc.

bus pass - This is how she will travel with the children to take them to from school/activities/etc.

All of these things are required to execute the job. However, they are also all good 24 hours a day. So there is nothing to stop her from using them for personal use.

I have looked a few sites and found quite a bit of information on how benfits in kind are taxed, but nothing on specifically what qualifies something as a benefit in kind.

Where are all the tax saavy posters?

I have to confess I have no idea....

On the mobile phone front isn't there something about the type of phone it is?

Oh good grief, I hope not.

Something tickles my mind about blackberries, iphones and other smart phones because they do more than make and receive calls/texts?

I think the crux of the issue is if requiring something for work renders it not a benefit in kind. I can very easily justify that text / internet / e-mail are required in her working hours. Same for the gym membership and the bus pass.

And, if needing it for work does not excuse something from being a benefit in kind, then why does a car become a benefit in kind only if it's allowed to be used for personal use.

Better brains than mine have long pondered that question but I would imagine on the car front that if it's not available outside working hours the issue doesn't arise, but as you point out what you provide is?

SE people can claim a propotion of phone bills etc. Is there anything similar for employees?

I fear the reality is that there is no specific guidance on this and I'll only find out I've done it wrong if.when HMRC come along to tell me about it.

And I'm now thinking that if you have an au pair and give her some perks, that the benefits in kind may then push you over into paye... I bet loads out there have gotten this wrong...

Why is childcare so complicated! I just want to go to work.

MrA is probably a good person to contact about this sort of thing, maybe search through his posts to see what he's written in the past about it.

A post by MrAnchovy about mobile phones and gym membership.

Where are all the tax saavy posters?

On holiday

OK, here goes...

A mobile phone (but NOT a blackberry, iphone or other PDA) comes under a specific exemption (S319 ITEPA 2003 as amended by FA 2006) which allows generous personal use without tax liability - see here. If the device is captured by the PDA definition, you have to rely on the general exemption described below.

There is a general exemption for items required to perform the duties of the job described here, note the 'sole purpose' and 'insignificant private use' requirements on which you need to judge (and be prepared to argue with HMRC).

The bus pass is a bit more complicated in theory (unless the employer has a specific dispensation agreed with HMRC, reimbursment of travel costs should always be reported on a P11D or P9D and claimed by the employee on a tax return), but the basic principal that applies is that there is no charge to tax if the total BUSINESS fares exceed the cost of the travel card as explained here, although as I say there is a duty to report these expenses explained here. In practice, the administration overhead involved here is enormous both for the employer and HMRC, with little or no tax liability to collect so the employer may choose to ignore the reporting obligation and live with the consequences.

Now I'm going to compare that with what I said before

Mr A beat me to it but the post really interested me as I also provide a bus pass and mobile phone for my au pair and hadn't really thought through the implications.

I have pasted some of the guidance from HMRC below but what really caught my eye was the accommodation exemption which I believe would mean that the benefits of providing accommodation would not be taxable (and when googling I actually saw the similar advice through the irish version of HMRC which actually specifically mentioned the au pair situation as an example of this exemption). Therefore I think even with bus pass etc it would be almost impossible (for me at least) to exceed the tax threshold for an au pair employment.

:)

PBW.x

You provide a season ticket to an employee
Definitions or restrictions
Covers season tickets or any other public transport vouchers you provide to an employee.
What to report, what to pay
For employees earning at a rate of less than £8,500 per year:
report on form P9D - section B
add the value of the benefit to your employee?s earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

You provide an employee with one mobile phone
Definitions or restrictions
You make one mobile phone (or SIM card) available for use to an employee. The phone can be used for both business and private calls. The contract is between you and the mobile phone operator.
The same rules apply whether you pay for rental charges, business calls and/or private calls.
What to report, what to pay
You have:
no reporting requirements
no tax or NICs to pay
Food and groceries
Definitions or restrictions
You provide an employee with food, groceries, farm produce or other edible produce with no resale value.
What to report, what to pay
For employees earning at a rate of less than £8,500 per year, you have
no reporting requirements
no tax or NICs to pay
Work out the value to use
The value to use is the cost to you of providing the food or groceries to your employee.

Accommodation you can provide free of tax and NICs
Definitions or restrictions
If any of the following conditions apply to accommodation you provide to an employee, then you don?t have to report the benefit or pay tax or NICs on it:
the living accommodation is provided because of a domestic or personal relationship rather than an employment one - for example, if your son or daughter works for your business
the accommodation is provided by a local authority on the same terms that housing is provided to non-employees
it's necessary for the employee to live there to be able to do their work properly - for example, agricultural workers living on farms and full-time caretakers who are on call outside normal working hours
it's customary to provide accommodation so the employee can do their work better - for example, ministers of religion, members of the armed forces and pub managers living on the premises
there's a special threat to the employee's security and they have to live in the provided accommodation as part of arrangements for their personal security
The 'necessary' and 'customary' exemptions only apply to company directors if they control no more than 5 per cent of the shares in the company and if they either work:
full-time for the company
for a non-profit making company or a charity
If you provide accommodation that falls into one of the categories above, you may also be able to cover certain related costs without having to pay tax or NICs. See the sections ?Council Tax, water or sewerage charges ? and ?Other costs including furniture heating, lighting, maintenance?.
What to report, what to pay
You have:
no reporting requirements
no tax or NICs to pay

There is plenty of specific guidance on employee benefits and expenses - 102 pages of it in the HMRC public guidance, hundreds of pages in the HMRC internal manual and manuals for tax professionals containing analysis of the statutes and relevant case law running to thousands of pages updated annually.

Cars are covered by specific legislation so you can't generalise the situation there.

No one person can possibly know all of this, let alone comply with it: larger employers keep broadly on top of it by updates received through their accounting and HR functions, but the nanny employer like the SME is pretty much on his own.

I have often pondered a 'professional association of nanny employers' but I suspect the take-up would be too small to make it worthwhile.

OH, benefits in kind don't count for the PAYE threshold (or, as is more relevant, the employer's NI Secondary Threshold of £136pw) anyway.

Sorry pertbootywish, that is a bit of a hijack - this thread is not about board and lodging, but since you brought it up, board and lodging for live-in domestic staff is not in general classed as 'living accomodation' anyway, although if there is a separate kitchen and bathroom for the sole use of the nanny, specialist advice should be sought.

I would recommend against cherry-picking bits of HMRC guidance on benefits, expenses and emoluments, as I say there are THOUSANDS of individual facts as well as a complicated general background which takes a few hundred hours of study just to get sufficient overview to know where to look in relation to a particular item.

Oh, I knew these waters were going to get muddier and not clearer.

Thanks for your responses. I'm still not clear on whether something being required for the job excuses it from being a benefit in kind (BIK). And I am also now wondering if I hand these things over and say they are for the exclusive use of performing her duties, then are they BIK. (I'm not going to do this. i am just wondering hypothetically).

Now, MrA, would you mind elaborating on the following statement:

"OH, benefits in kind don't count for the PAYE threshold (or, as is more relevant, the employer's NI Secondary Threshold of £136pw) anyway."

Does this mean that if I pay an au pair £90 per week, and give her benfits in kind (let's assume everything on my earlier list is a BIK) worth £50 per week I still don't have to operate paye, so no NI, etc. But, I do have to pay tax annually on the BIK and deduct her share of the BIK tax from each pay cheque?

Jeez, I hired an au pair and a childminder to escape the tax nightmare...

OK, some more info below:

I'm still not clear on whether something being required for the job excuses it from being a benefit in kind (BIK).

No, the test is stricter than that. First the fact that it is required for the job must be the only reason you are providing it (this is the 'sole purpose' test and is described in more detail here: this means that if the employer has a mixed motive, which is partly to enable the employee to perform their duties and partly so that the employee can use the equipment or service privately, exemption will not apply). And second any private use must be 'not significant' which is described in more detail here. There is also a third test which is that this exemption does not apply to benefits provided on the employers premises, which can cause some difficulty where live-in staff are concerned but I won't go into this now.

And I am also now wondering if I hand these things over and say they are for the exclusive use of performing her duties, then are they BIK. (I'm not going to do this. i am just wondering hypothetically).

I assume you mean "hand these things over and say they are not for the exclusive use of performing her duties"? This does not automatically make them taxable benefits, indeed if you say there can be some private use, but place limits on it (so for instance you say that she can only use the gym privately if she has also taken the children there that week), that can actually help provide evidence for the "not significant" test.

Does this mean that if I pay an au pair £90 per week, and give her benfits in kind (let's assume everything on my earlier list is a BIK) worth £50 per week I still don't have to operate paye, so no NI, etc.

Yes that's right

But, I do have to pay tax annually on the BIK and deduct her share of the BIK tax from each pay cheque?

No you don't - as long as the total value of all remuneration (including benefits) is less than £8,500 in each year, there is no tax or NI due on BIK, you just have to report them annually on a P9D. If it is more than £8,500, you have to pay Employer's NI on the BIK annually when you submit a P11D instead of the P9D, and tax will be deducted through the employee's tax code (HMRC would write to you and tell you that you have to operate PAYE). Now this figure of £8,500 hasn't changed since God was a boy, so sooner or later it is going to become a problem, but for now you are OK.

Sorry, last paragraph should be:

No you don't - as long as the total value of all remuneration (including benefits) is less than £8,500 a year (£163 a week), there is no tax or NI due on most BIK, and you don't need to report them either (benefits that amount to a payment to the employee e.g. vouchers that can be used to purchase items or services, or provision of separate living accomodation must be reported on a P9D). If it is more than £8,500pa, you have to pay Employer's NI on the BIK annually when you submit a P11D instead of the P9D, and tax will be deducted through the employee's tax code (HMRC would write to you and tell you that you have to operate PAYE). Now this figure of £8,500 hasn't changed since 1979 when it was the equivalent of £33,000 in 2011 prices, and sooner or later it is going to become a problem, but for now you are OK.

Thank you, MrA. You are officially more helpful than direct dot gov.

But, my hypothetical question was if I gave hre a bus pass, gym membership, and phone and said to her that these things are for use exclusively in the course of her duties as my au pair (hence not allowable at all for any personal use), then would it still be a BIK. I've no intention of doing this as I think it would be mean. Am just wondering if that would free me from the BIK.

Strix - If you calculate the cost of an item specificially for your children's activities individually, and that works out more expensive then the membership/pass/etc - then providing the membership shouldn't incur any liabilities because you have bought it for their employment use. So make those calculations and keep that document in a file. I can't really see HMRC chasing you for those few pounds!!!!

Ah OK, in that case there would be no BIK - you would pass the "sole purpose" test and you would be saying that there should be no private use - you would need to be prepared to back this up with disciplinary action if she did use the bus pass/gym privately.

However as you say, this would be a bit mean (albeit that it is HMRC that is imposing this meanness, not you). In practice, I think most people with a potential tax liability in this situation would be prepared to take the risk of a PAYE audit - certainly for the bus pass, and probably the gym membership too (as long as it really was mainly for your convenience and not just a perk). Losing an argument to HMRC over a matter of interpretation in a grey area is not fraud, so should not scare accountants/lawyers/public servants.

Grrrr, unhelpful cross post. I'll try again.

Ah OK, if you forbid private use there would be no BIK - you would need to be prepared to back this up with disciplinary action if she did use the bus pass/gym privately (so you can't just hand it over saying 'no private use' with a nudge and a wink and turn a blind eye to what goes on).

However as you say, this would be a bit mean (albeit that it is HMRC that is imposing this meanness, not you). In practice, I think most people with a potential tax liability in this situation would be prepared to take the risk of a PAYE audit - certainly for the bus pass, and probably the gym membership too (as long as it really was mainly for your convenience and not just a perk). Losing an argument to HMRC over a matter of interpretation in a grey area is not fraud, so should not scare accountants/lawyers/public servants.

Hmmm, I'd better add my professional advice disclaimer to this thread