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How HMRC deal with a company benefit in your tax code

HMRC will add the value of the benefit to any other untaxed income you have and take 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 £6,475 (the amount for the 2009-10 tax year) and your employer has provided you with private medical insurance worth £600:

• your total allowances and reliefs are £6,475 (your Personal Allowance)
• your total 'deductions' are £600 (the value of your medical insurance benefit) 
• your total tax-free amount is £5,875 (£6,475 less £600)

So, you have tax-free income of £5,875 and your tax code is 587L.

The same principle applies for all other company benefits.

HMRC 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 are worked out

• Check Income Tax rates and allowances on the HMRC website Opens new window

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 will work 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.

Van benefit

You have to pay tax on the value to you of using your employer's van privately. A standard charge - currently £3,000 - normally applies.

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 2009-2010 the 'fuel charge multiplier' that HMRC use to work out the value of your fuel benefit is £16,900.

Fuel for vans: there is a flat rate charge of £500.

You can use HMRC's online calculator to check the value of your car and fuel benefit.

• Calculate your car and fuel benefit Opens new window

Loan from your employer

If your employer lends you more than £5,000 you have to pay tax on the benefit of paying no interest or interest at less than the official interest rate. The amount deducted 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.

• Official interest rates Opens new window

Medical insurance

You have to pay tax on any private medical insurance your employer pays or provides for you - so HMRC deduct 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.

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 your Tax Office right away so that you don't get a large tax bill at the end of the year. (Employers don't have to tell your Tax Office 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' below for more detail on how this works.

You should also tell your Tax Office if you stop getting taxable company benefits. They can then change your tax code and make sure you don't pay too much tax. Either way, if they change your tax code you should receive a new PAYE Coding Notice (form P2).

• Contact details for all Tax Offices Opens new window

New company benefits and your tax code

If you get a new taxable company benefit HMRC will change 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 only part of the year, HMRC will divide the actual benefit by 12 (months) and collect 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. They 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.

• More information on how to pay back tax that you have underpaid

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