Company benefits in your tax code

If your employer provides you with company 'benefits' or perks - such as medical insurance or a car - you may have to pay tax on them. HM Revenue & Customs (HMRC) will usually include the value of the benefit in your tax code so that they can collect the tax due through PAYE (Pay As You Earn).

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How HMRC deals with a company benefit in your tax code

HMRC adds the value of the benefit to any other untaxed income you have and takes away the total amount of income you've not paid tax on from the total value of your allowances and reliefs. The amount you're left with is the tax-free income you are allowed to receive in the current tax year.

Example

You are entitled to the basic Personal Allowance of £10,000 (the amount for the 2014 to 15 tax year) and your employer has provided you with private medical insurance worth £600:

  • your total allowances and reliefs are £10,000 (your Personal Allowance)
  • your total 'deductions' are £600 (the value of your medical insurance benefit)
  • your total tax-free amount is £9,400 (£10,000 less £600)

So you have tax-free income of £9,400 and your tax code is 940L.

HMRC will usually send you a 'PAYE Coding Notice' that explains exactly how they have dealt with the benefit in your tax code.

Find out how tax codes work

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Overview of company benefit entries in your PAYE Coding Notice

Car benefit

You have to pay tax on the benefit of using an employer's car for your private motoring. HMRC works out the value of the benefit by taking into account a number of things including the car's cost, its fuel type and its carbon dioxide (CO2) emissions value.

Find out about tax you might have to pay on a company car

Calculate your car benefit

Van benefit

You have to pay tax on the value to you of using your employer's van privately. A standard charge - £3,090 for 2014 to 15 - normally applies. On 6 April 2010 the standard charge was reduced to nil for electric vans.

Fuel benefit

You'll see this code if you get free fuel that's available for you to use for your private motoring in a company car or van.

Fuel for cars: for 2014 to 15 the 'fuel charge multiplier' HMRC uses to work out the value of your fuel benefit is £21,700.

Fuel for vans: there is a flat rate charge of £581 for the 2014 to 15 tax year.

Calculate your fuel benefit

Loan from your employer

If your employer lends you more than £10,000 you have to pay tax on the benefit of paying no interest or interest at less than the official interest rate. The amount HMRC deducts from your tax-free pay is the difference between the interest you pay and what you would pay if interest was charged at the official rate.

Look up official interest rates

Medical insurance

You have to pay tax on any private medical insurance your employer pays or provides for you - so HMRC deducts the value of this from your tax-free pay.

Employer/other employer benefits

You'll see this where you have to pay tax on the value to you of benefits or expenses provided by your employer that are not covered by the categories above.

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If you start or stop getting a taxable company benefit

If you start to get taxable company benefits - for example if you change jobs - you should tell HMRC right away so that you don't get a large tax bill at the end of the year. (Employers don't have to tell HMRC about any company benefits you get until the end of the tax year, unless it's a company car.) HMRC will adjust your code number and start collecting all or some of the extra tax sooner - see the section 'New company benefits and your tax code' for more detail on how this works. If you get a company car or change your company car, you only need to report the details to HMRC once you have the use of the car.

You should also tell HMRC if you stop getting taxable company benefits. HMRC can then change your tax code and make sure you don't pay too much tax.

Either way, if HMRC changes your tax code you should receive a new PAYE Coding Notice from them.

Contact HMRC

New company benefits and your tax code

If you get a new taxable company benefit HMRC changes your tax code to take account of:

  • the 'actual' amount received in the current tax year
  • the 'annual' amount in the next tax year

If you get the benefit for part of the year only HMRC divides the actual benefit by 12 (months) and collects the amount due from the date the code changes - this means that you won't have paid enough tax at the end of the year. HMRC will collect the tax that you owe next year along with the annual amount due for that year. This has the effect of spreading your payments so that you don't have to pay the full amount right away.

Find out more about how to pay back tax that you have underpaid

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More useful links

Learn more about tax on company benefits

What to do if you think your tax code is wrong

Understanding your PAYE Coding Notice

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