Indie Dev’ Guide 16: Taxation of Non-Cash Benefits for Employees and Directors in the Gaming Sector
- Indie Dev Guides Introduction
- Guide 1: Limited Companies
- Guide 2: Personal Tax
- Guide 3: VAT
- Guide 4: Payroll and Workplace Pensions (Auto Enrolment)
- Guide 5: Digital Tax Accounts and Software
- Guide 6: Funding your Prototype
- Guide 7: Corporation Tax
- Guide 8: R&D Tax Relief
- Guide 9: Video Games Tax Relief Claims
- Guide 10: Understanding your Accounts
- Guide 11: British Film Institute (BFI) certification
- Guide 12: Business Expenses
- Guide 13: Withholding Tax on overseas income
- Guide 14: Benefits of an Audit
- Guide 15: Video Games Expenditure Credit
- Guide 16: Taxation of Non-Cash Benefits for Employees and Directors in the Gaming Sector
- Guide 17: Management Accounts and Forecasting in the Gaming Sector
- Guide 18: Bookkeeping Software for the Gaming Sector
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In addition to their salaries, it is common for studios to reward their employees and directors using non-cash benefits in kind, the value of which are still taxable on the staff. Examples are:
- Company cars
- Medical insurance
- Interest-free loans over £10,000
- Use of company-owned accommodation
- Provision of food and drink
This is not an exhaustive list, and there are exemptions and reliefs available for most types of benefit, but generally the employee will be taxed on the cost to the employer of providing the benefit, or by reference to a scale figure based on the particular type of benefit provided, as in the case of a car where the taxable benefit is often based on the CO2 emission factor of the particular vehicle.
Normally the value of the benefit is included in the employees’ PAYE code, leading to the tax being collected by deduction from their salary, although it will usually be necessary for the employee to submit a self-assessment tax return to confirm the amount, which needs to be provided to them by the employer on a Form P11D each tax year.
It is possible to include the value of some benefits in the amounts put through the payroll, although this is quite a complicated procedure for employers.
There are also a number of non-cash benefits which are not treated as taxable by HMRC, and the following list includes a common selection of these:
- Mobile phones – these must be under an employer contract
- Pension contributions
- Car parking
- Staff parties
- “Trivial” benefits (non-cash gifts of up to £300 per annum, with each one being £50 or less).
Again this is not an exhaustive list, and most of the exemptions require adherence to particular rules so you need to ensure that these are followed.
Sometimes employers want to provide benefits to their staff without them having to pay tax – this commonly happens where staff events are laid on as incentives and rewards. Examples are Christmas parties, summer outings or other social meals/drinks events. Normally the total cost of these events (subject generally to a limit of £150 per person including VAT, per annum) has to be divided between those who attend and included on their P11ds for declaration on their tax returns. However, to prevent the bad feeling that this would generate, it is possible for the employer to inform HMRC of the amounts applicable to each employee and pay the tax on their behalf, based on their individual tax circumstances – this process is known as a “PAYE Settlement Agreement” (PSA) and is done by the employer without any intervention or knowledge of the employees.
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