FBT, or Fringe Benefit Tax, can be confusing at the best of times, especially if you are a small to medium business with a handful of employees. Recently we’ve had clients asking if they can pay for certain items and avoid paying PAYE for the employee, unfortunately this is not the case – the tax must be paid somewhere! Sometimes it’s about identifying the situation and ensuring the best solution for everyone.
What is FBT?
Employees receive cash benefits for working for a business in the form of wages or salary, and are taxed through income tax (PAYE deductions). The non-cash benefits don’t get taxed in this manner, so FBT was introduced to tax these benefits.
What are some of the potential advantages of offering fringe benefits to employees?
For many small businesses, offering fringe benefits may be a way to differentiate themselves from the competition and to attract and retain new employees. At the same time, employers who choose to offer such benefits need to be aware of tax requirements. These benefits are considered taxable income unless specifically excluded by current tax laws.
How can I tell what FBT applies to in my business?
Here’s a few examples of what might be deemed as a non-cash benefit, and therefore attract Fringe Benefit Tax.
- Vouchers or Gift Cards, to use at places such as petrol stations or supermarkets
- Use of a company vehicle during weekends and days off
- Payment of the Employees home telephone, fax or internet connection, or their cell phone
- Full payment of Gym memberships
When do I register for FBT?
As an employer, you need to register for FBT when you first start giving your employees, shareholders or other people associated with your business, a fringe benefit. We can help you register and select a filing frequency that suits your business best. Be warned, if you haven’t registered yet but you have been giving fringe benefits, you will need to back date your registration and file for earlier periods and make any outstanding payments.
What do I do once I’ve registered?
Once you’re registered for FBT, you need to:
- Find out about the rules for the fringe benefits you provide
There are different rules and exemptions for each type of fringe benefit, including the way you work out and record their taxable value.
- Choose a filing frequency
There are options for filing and paying FBT quarterly, annually for the tax year, or annually for your income year. Your choice of filing frequency might be limited depending on the type of company you have and how much tax you pay each year.
- Choose a FBT rate and use it to calculate the FBT on the fringe benefit
FBT is a percentage of the taxable value of the fringe benefits you provide. There are three different rates you can choose from, with pros and cons to consider for each.
- File FBT returns and pay FBT by the due date
The easiest way to file FBT returns is online. We also mail out paper returns which you can fill in and mail back. You can claim the FBT you pay as a deduction in your income tax return.
The team at Ontrack Bookkeeping Ltd are here to assist with all your Fringe Benefit questions. More information can be found on the IRD website. You can also find helpful videos about FBT and motor vehicles here.
Source: Inland Revenue, Copyright 2018