Offering staff perks can have tax implications. FBT is a type of tax that you must pay on many of the 'perks' that you give you employees, and doesn't apply to sole traders. When you first start giving your employees the benefit, you need to register for FBT with Inland Revenue, if you think that you might need to be paying FBT please contact your RightWay accountant and let them know.
Types of things that you would need to pay FBT on would be:
- work vehicles available for personal use
- subsidies on gym memberships or insurance
- discounted goods and services.
FBT doesn't apply to things already taxed for the employee, like:
- salary and wages
- cash bonuses
- employee allowances
You pay FBT on the cost of the benefit to the employee, e.g. the cost of a vehicle for the portion of time it's available for personal use.
For example, Casey is an electrician and has a business with two employees and two vans. His employee, Jon, takes one of the vans home each evening and every weekend, where he often uses it to run his personal errands and drive up the coast for his mountain biking trips. This means that Casey has to pay FBT on 2/7th of the cost of the van because it's available for Jon to use. Even if Jon didn't use the van one weekend FBT would still need to be paid as it's available for him to use if he did want to.
What's the difference between a perk, an allowance and an expense?
It's important that you don't get FBT confused with expenses and allowances. Expenses are things like quarterly team lunches that you simply include with the day-to-day cost of running your business. Allowances are an extra amount that you pay to employees on top of their wage, such as a yearly shoe allowance. Anything you're giving out for free as a reward or perk though - such as cricket tickets for reaching a sales target may incur FBT and you should chat to your RightWay accountant to check if it will be applied - as for things like food and drink, some exclusions may apply.
What to watch out for
Many employers don't realise until too late that they need to pay FBT. If you find out after you've been giving taxable benefits for a while, you'll have to backdate your tax payments, which can result in a big bill. It's always important to chat to us if you do think you might be introducing something that will leave you with an FBT bill to pay - in many cases you'll be better off just offering higher salaries or regular bonuses instead.
There are a number of different frequencies that you can file FBT, visit Inland Revenue for more information.
If you have any FBT related questions either email you accountant, firstname.lastname@example.org or call 0800 555 024.