Tax on Benefit in Kind Gross or net amount?

[Nagoya]

I have worked for a company for many years. As part of what they do is sell food and drink

I am allowed to have refreshments to the value of £7.50 per shift. Every year the company inform HMRC and I pay tax on the benefit.

For the last 18 years they have told the HMRC the cost of this benefit based on the cost to the company not the retail price. So even though I can have up to 7.50 a day the cost to the company is much less. A sandwich which sells for £4.00 may only costs them £1.00. The declared amount is usually about 500 so I pay tax of 120 at 20%.

However for some reason they have now declared to the HMRC the gross cost. So last year they said the benefit I received was 1575. HMRC have written to me to say I owe them about 300.

I don't understand why they have changed the way they work out the benefit. Has anything changed recently for them to make the change. I am trying to get hold of someone in my company but they are quite large and there are not many of us in this situation. Should I complain to the HMRC that the company is giving wrong information ?

[Lambs]

N,

The benefit in kind is usually assessed by reference to the cost to the employer of providing the benefit. In circumstances such as you describe, this would generally mean the cost of the food so provided.

There are now some situations where HMRC has managed to break the link between the taxable benefit and the cost to the employer (cars, cheap loans and accommodation have been around for ages but I am looking beyond those) and it is all about "salary sacrifice" or "optional remuneration arrangements".

This would be a scenario where the employer has said something like "we can give you the choice of either salary of £1,575 per year or food worth £7.50 per shift", in which case you get taxed on the higher of the two values.

Based on your description, if the provision of food has no alternative salary-based option, then someone has simply made a mistake and it should be rectified, to your advantage.

I suggest you query this with your employer initially, as HMRC is unlikely to be motivated to check an employer's calculations unless there's a lot of tax at stake and HMRC could make more money - which appears unlikely, in the scenario you describe.

It may be worth pointing out to the employer that it will also be to their advantage to reduce the taxable benefit down to cost, because the employer has a Class 1A NICs liability on employee benefits (payable only by the employer and nothing to do with individual employees) so a drop in taxable employee benefits means a drop in the employer's NI liability as well.

Just so you know, the statutory reference is ITEPA 2003 sections 203 & 204.

There is more guidance at HMRC's Employment Income Manual at EIM20020:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim20020

If the employer cannot / does not help, then you can dispute the benefit assessed on you personally by taking the matter up with HMRC directly and explaining your understanding of the position. Assuming you have work colleagues who are also affected, then if they want to reduce their own tax bills, then they will each have to raise the issue with their tax office, on an individual basis. (Clearly, it would make more sense if it were done centrally by the employer by revising all affected benefit Forms P11D as a single exercise, but each employee can deal with it at a personal level, if necessary.) I can imagine that some employers may be less than pleased if somebody went around telling his or her colleagues that their employer cannot do payroll properly, so discretion is advised.

Any further questions, get back in touch on this thread.

In the interim, I trust this will prove helpful.

Kind regards,

Lambs

[robbob]

The crazy thing here is that these meals/refreshments could probably if the arrangement was structured right by your employer potentially qualify on a completely tax free basis. It's not that hard to meet the workplace canteen exemption from tax rules if you put your mind to it.
They could and should do the right thing here (but wont) and suck up any benefit charge themselves - with the tax free option being available it's a bit of an insult to tax you on more than the cost to them - they would not have got away with treating staff like that in the shipyards back in the day
Perhpas a free / "tax free" sandwichies matter protest is in order (no disrespect meant to the black rights matter protests going on at present which are hopefully moving the world in the right direction quicker than before these protests started)

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21670

[Lambs]

R,

OP said "company is quite large" but "not many of us in this situation". This is why I did not raise the issue of tax-free provision in my reply: it has to be made available to all employees on a site in order to be tax-free. Although it is possible that it might nevertheless work on a site-by-site basis, in some circumstances.

Regards,

Lambs