Tax on Benefits?
Discussion
Simple question coming up, and you'd think Google would be your friend, but apparently not 
Say I pay £100 for Health insurance per month and I'm a higher rate tax payer (40%) I think that amount comes out pre-tax/NI but I will pay benefit in kind tax on it by losing some of my tax allowance - so how much is that £100 actually costing me from my salary? It can't be as simple as £100-40%=£60
Say I pay £100 for Health insurance per month and I'm a higher rate tax payer (40%) I think that amount comes out pre-tax/NI but I will pay benefit in kind tax on it by losing some of my tax allowance - so how much is that £100 actually costing me from my salary? It can't be as simple as £100-40%=£60
You may think it's a simple question but I haven't a clue what you are asking.
I THINK you are saying that you pay £100 every month in respect of a Medical Insurance policy.
Is that what you are actually doing?
You then go on to talk about "Benefits".
Do you really mean Taxable Benefits in Kind - which are completely different things?
If that is the case, who is paying this premium, you or your employer?
I THINK you are saying that you pay £100 every month in respect of a Medical Insurance policy.
Is that what you are actually doing?
You then go on to talk about "Benefits".
Do you really mean Taxable Benefits in Kind - which are completely different things?
If that is the case, who is paying this premium, you or your employer?
LotusMartin said:
(Hypothetically) I contribute £100 from my pre-tax salary for a scheme provided by my employer. I save on PAYE tax, but I do pay tax on Benefit in Kind (I think)
Sounds like it's a Salary Sacrifice scheme.If an employer provides medical insurance for a director or employee, that is classified as a taxable benefit and the employee will pay PAYE on the value of the Taxable Benefit provided.
In this case, you (say) have a headline gross salary of £50,000. You pay into a medical insurance fund at £100 per month so you annualy pay £1,200 into the scheme. You do this through a salary sacrifice scheme so you are actually charged PAYE on a Salary amount of £50,000 less £1,200 i.e. £48,800. So, on your salary, you pay less PAYE AND less Employee's Class 1 NI. Your employer will ALSO pay less Employer's NI as it is calculated on £48,800 , not £50,000.
The employer will pay Class 1A NI on the £1,200.
LotusMartin said:
It can't be as simple as £100-40%=£60
As above, it does sound like you have some form of salary sacrifice going on, but if that was the case, the gross salary would simply be reduced and you wouldn't see the £100 going outOn the assumption that you're actually just paying for the insurance from pre-tax pay, the total cost to you will be £58 (40% tax and 2% national insurance)
There is no benefit in kind, unless the true cost is more than £100pm and the employer is paying for some of it
It's almost certain that you need to earn £166.67 to get that health benefit.
166.67 less 40% tax leaves you with £100 to pay the premium.
You see the £100 go out as cash and the 66.67 is probably collected by the tax-man through your PAYE code.
However, the "cost" to you is only £100. There is no scenario under which you can earn the original £166.67 tax free. You would only ever receive £100 in your pocket and all that's under discussion is how you spend it.
166.67 less 40% tax leaves you with £100 to pay the premium.
You see the £100 go out as cash and the 66.67 is probably collected by the tax-man through your PAYE code.
However, the "cost" to you is only £100. There is no scenario under which you can earn the original £166.67 tax free. You would only ever receive £100 in your pocket and all that's under discussion is how you spend it.
pacoryan said:
If it is provided through salary sacrifice it is £100 p/m of gross salary that it is costing because that is what he has sacrificed, deduct the prevailing tax and NI (as per the previous post) and the actual difference to the OP's pocket is clear.
I take your point as the OP does say it comes out "pre-tax and pre-NI". In which case it will presumably never show up on his P60 so there was really no question to ask - the "pay cut" should be apparent. Although I guess that unless the salary year matches the tax year he might have to check that manually.Sheepshanks said:
LotusMartin said:
(Hypothetically) I contribute £100 from my pre-tax salary for a scheme provided by my employer. I save on PAYE tax, but I do pay tax on Benefit in Kind (I think)
No.If there is a payment of £100 from pre-tax pay that is then spent in a scheme provided by employer to bring a £100 benefit in kind (ie, the employer spends precisely £100 on health insurance, then the tax effect of the benefit in kind (£40 additional payment on the bik because what the company pays out in health cover premium is the benefit in kind) precisely balances the tax saving on the deduction (£40 less tax). So the cost is a straight £100 - except that bringing national insurance into account there would be a saving there (employees pay no NIC on bik though employers do), reducing the cost to £98 if pay is over the upper earnings limit for NIC.
oop north said:
Sheepshanks said:
LotusMartin said:
(Hypothetically) I contribute £100 from my pre-tax salary for a scheme provided by my employer. I save on PAYE tax, but I do pay tax on Benefit in Kind (I think)
No.If there is a payment of £100 from pre-tax pay that is then spent in a scheme provided by employer to bring a £100 benefit in kind (ie, the employer spends precisely £100 on health insurance, then the tax effect of the benefit in kind (£40 additional payment on the bik because what the company pays out in health cover premium is the benefit in kind) precisely balances the tax saving on the deduction (£40 less tax). So the cost is a straight £100 - except that bringing national insurance into account there would be a saving there (employees pay no NIC on bik though employers do), reducing the cost to £98 if pay is over the upper earnings limit for NIC.
To the simple question asked, the answer is no. There's no BIK - it's salary sacrifice.
I'm not sure this is the scenario described by the OP, but I understand it's a common one....
Company provides (& pays for) travel / heath insurance for it's employees. The employees themselves have to opt into the scheme but do not contribute to the cost of the insurance. However, they do they owe tax for the benefit in kind.
So if the cost of the insurance is £100 and per the OP's scenario the employee is a 40% rate tax payer, then they would owe HMRC £66.67 tax for the BIK ((100/.4)-100).
So for the employee to consider their options, they'd want to base the comparison on their post-tax income:-
- No insurance - buy your own for £100 of your post-tax income.
- Insurance - for which the £100 cost is paid for by the company, but the employee's post-tax income has been reduced by £40 as a result of paying HMRC for the BIK. (They've paid HMRC £66.67 tax, which would otherwise have been taxed @ 40% leaving £40).
Company provides (& pays for) travel / heath insurance for it's employees. The employees themselves have to opt into the scheme but do not contribute to the cost of the insurance. However, they do they owe tax for the benefit in kind.
So if the cost of the insurance is £100 and per the OP's scenario the employee is a 40% rate tax payer, then they would owe HMRC £66.67 tax for the BIK ((100/.4)-100).
So for the employee to consider their options, they'd want to base the comparison on their post-tax income:-
- No insurance - buy your own for £100 of your post-tax income.
- Insurance - for which the £100 cost is paid for by the company, but the employee's post-tax income has been reduced by £40 as a result of paying HMRC for the BIK. (They've paid HMRC £66.67 tax, which would otherwise have been taxed @ 40% leaving £40).
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