In today’s job market, employers are keenly aware of the fact that the offer of a regular paycheck is rarely enough. For prospective employees, perks such as company cars, private healthcare, or free gym memberships could make that job significantly juicier.
These extras, known as "Benefits in Kind" or BIK, are goods or services provided by an employer and enjoyed by an employee. Highly desirable, yet many employees do not realize that such BIK perks are often taxed. Being aware of BIK helps you make informed decisions along the lines of your pay package without any nasty surprises when tax time rolls around.
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What you need to know about BIK?
Here are some essential points to understand what Benefit in Kind means and how it pertains to you:
The first thing that you need to know about BIK is what is benefit in kind. Understanding the term without its proper definition is impossible.
Definition of BIK
A benefit-in-kind is any benefit provided by the employer to their employees that does not involve cash. Although you do not receive these as direct income, for tax purposes, they are part of your earnings.
Possible Examples of BIK
Some of the usual BIKs offered by employers include:
Company vehicles available for personal use
Private health/dental insurance
Interest-free loans or loans at lower interest rates
Accommodation provided for free or at a subsidized rate
Stock options/share schemes
Mobile phones or laptops with personal usage
Why are BIKs taxable?
Tax authorities consider BIK as income because they are real benefits. The benefit value goes into your salary, and you pay taxes on the entire income, plus national insurance or contributions, if applicable. This is the main reason why BIKs are included in taxes.
How is BIK Calculated?
BIK valuation is, in general, defined at current market rates or on the basis of special formulas defined by tax authorities. For example, the taxable value of a company car could depend on the price of the car, its fuel type, and its CO2 emissions.
Who Reports BIKs?
Your employer usually calculates and reports the benefit in kind tax value to the tax authority in most cases. This is done yearly and thus appears in your tax filings.
Tax-Free or Exempt BIKs
Not every BIK is taxable. There are certain non-taxable benefits which can be provided by your employer.
Employer contributions to a pension scheme
Training related to work
Safety equipment or uniforms
Bicycles for the cycle-to-work scheme
Make sure to check which benefits are taxable in your country, as tax rules may differ.
Conclusion
Being a Benefit in Kind sounds great, really, but there are tax implications. Such non-cash perks could do things for your bottom line when added up. If you are an employee weighing a job offer or an employer designing a benefits package, familiarizing yourself with BIKs will prevent you from confusing the matter and ensure compliance with tax laws. This information will definitely help you the next time you are receiving BIKs, as you can also ask for the tax associated with the BIKs that you are receiving.
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