Tax position on company 'benefits' that you pay for yourself through salary

Hello. I feel like this is one of those things that everyone apart from me understands. Basically, if your employer offers you a 'benefit' that you can choose to pay for through your pay, what is the tax position on this?

For example, the company offers Denplan insurance. The quoted 'before tax' cost for the level of cover required is, say, £60 per month. Does this mean I pay the £60 and then also pay 40% of £60 (£24) on top, for a total of £84? Or does the £60 quoted cover my whole liability? 

The company also offers Private Medical Insurance. This is paid for by the company itself, and so I understand that it's a BIK and that I must therefore pay 40% of the declared value in tax. But, the Denplan example above is paid for by me, not the company, so how can it be a BIK?

I've tried speaking to HR and they aren't helpful. I do know that the company 'payroll' the BIK rather than doing a P11D if that makes any difference.

If you have such benefits through work, I'd be really grateful if you can explain how the tax works on them, please.

Comments

  • You should speak to payroll rather than HR. They will be able to explain to you how the schemes work and what will appear on your payslips.

    And no, don't worry, it's not something everyone apart from you understands (and probably why HR couldn't help).


  • DullGreyGuy
    DullGreyGuy Posts: 10,311 Forumite
    First Post First Anniversary Name Dropper
    It will depend on if the £60 is taken from your gross or net pay... if its gross then its a benefit in kind and so is taxable, if its from the net then tax has already been paid on the monies and so no BIK
  • I have a similar scenario as you.  
    Health cover as a BIK and group dental cover which I choose to pay for.  
    The BIK for healthcare gets applied by payroll… the dental cover is just a deduction from salary after tax.   It’s a cheap plan with good cover because it’s averaged across all who use it. 
    This really is a simple question for payroll to answer. 
  • zagfles
    zagfles Posts: 20,318 Forumite
    First Anniversary Name Dropper First Post Chutzpah Haggler
    edited 22 September 2022 at 11:04PM
    Believe me, hardly anyone understands it!
    It sounds like yours is a "salary sacrifice" arrangement. You agree to a lower salary in return for the benefit. So you're not directly paying for it, but indirectly by agreeing that your employer pays you less money in return for the benefit.
    But if (like medical etc) the benefit is taxable, then you get taxed on the benefit, either via a P11D or by them "payrolling" the benefit. So the tax situation is no different to if you just got paid and bought the benefit yourself. You save tax on the salary sacrificed but pay tax on the benefit instead.
    So what's the point? The biggest is you save on NI, as there is no employee NI on BIKs. Plus your employer may be able to buy the benefit cheaper than you'd be able to yourself. Also if you're repaying a student loan I believe it saves on that as BIKs don't count for student loan repayment calculations.
    There are all kinds of complications with some BIKs particularly company cars, as the govt changed the rules a few years ago to try to clamp down on abuse of sal sac, where you can be taxed on the greater of the amount sacrificed and the BIK value. But for a lot of benefits eg medical these will probably be the same.
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