Handling benefits in kind

[Pedro F]

Hi everyone, I've been lurking here for a while as I migrated my 10 years worth of transactions into beancount (from a bespoke solution involving excel and python). I'm now fine tuning things and starting to extract nice report and I'm really pleased with beancount/fava and what it can do, including how easy it is to intergrate with Jupyter. Thanks for all the effort put into this great tool :)

I'm struggling to represent how benefits in kind (BIK) are handled in my payslip. This is likely to be very UK specific but I was hoping someone could share some ideas. An example of a BIK is health insurance where the employer pays for the benefit but the employee still has to pay tax on it (basically increasing the taxable income).

Here's a made up example of how this shows up in a payslip:
---------------------------
Gross Pay:
- Salary: £2000
- Pension Contribution: -£500
- BIK: Health Insurance: £50
Total Pay: £1500

Deductions:
- Income Tax: -£250
- National Insurance: -£50
Total Deductions: -£300

Net Pay: £1200
---------------------------

Noteworthy points:

- Total Pay = Salary + Pension Contribution (or, more generically, SUM(Gross Pay items) excluding BIK entries). Pension contributions are taken from the gross salary, decreasing the taxable income.
- Total Deductions = SUM(Deductions)
- Net Pay = Total Pay + Total Deductions

The taxable income, that is not reported in the payslip but it's what is reported to the tax man and what's used to decide how much tax we pay, does include the BIK entries. If I check the details on HMRC (IRS in the US I guess), the taxable income for this month would be £1550.

When it comes to beancount, I could just ignore the BIK entries and log it as:

2000-01-31 * "Salary"
    Income:Hooli:Salary       -2000 GBP
    Assets:Pension            500 GBP
    Expenses:Taxes:Income     250 GBP
    Expenses:Taxes:NI         50 GBP
    Assets:BankAccount       1200 GBP

But this doesn't make it possible to calculate the taxable income and If I add postings with the BIK entries the transaction doesn't balance.

My goal is to be able to extract a report of my actual taxable income, which means that I need to somehow add the BIK postings to the transaction.

Does anyone have a sensible way to represent this? I feel like I may be missing something very obvious :)

Thanks

Pedro

[Ben Blount]

How about adding an Income leg for the BIK amount + an equity posting which absorbs it? That will make the transaction balance.

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[Pedro F]

That's what I was considering. I suppose that is the only way really: if I want to report on it I need to record it as a posting and I need to absorb it somewhere so everything balances.

Is there any reason you're suggesting an equity account as opposed to, say expenses? Intuitively, it feels strange to call this equity but maybe it's because I'm relatively new to beancount.

Back to my example, if add 2 accounts: Income:Hooli:BIK and Equity:BIK, it would become:

2000-01-31 * "Salary"
    Income:Hooli:Salary       -2000 GBP

    Income:Hooli:BIK          -50 GBP
    Equity:BIK                50 GBP

    Assets:Pension            500 GBP
    Expenses:Taxes:Income     250 GBP
    Expenses:Taxes:NI         50 GBP

    Assets:Bank:Current       1200 GBP

With this, I could say that:

- Taxable Income: SUM(Income:Hooli:*)
- "Normal" Income: SUM(Income:Hooli:*) - Equity:BIK

As usual, naming things is hard so I'll need to come up with an intuitive name for these accounts

If that's the case I guess I really needed a rubber duck to think this through :)

Thanks

[Ben Blount]

Putting it in Expenses makes a lot of sense. I was originally thinking Equity since it's not an expense that you personally pay, but since it's an expense incurred on your behalf it does make sense to attribute it to your expenses. I'd want to make sure it was in a separate Expense account if it were my ledger so I could clearly distinguish it between other expenses.

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[Daniele Nicolodi]

Hello Pedro,

except the name, which I never heard before, I think this form of
benefits is rather common. The way I handle it is to simply record it as
an expense, ie the fact that the money never reaches my bank account is
not relevant for accounting purposes. The expense is recorded as a
posting in the same transaction that record the payslip, so that the
"atomicity" of the operation is not lost.

In your case, it seems that this requires juggling the amounts a bit:

2000-01-31 * "Salary"
Income:Hooli:Salary -2050.00 GBP
Assets:Pension 500.00 GBP
Expenses:Taxes:Income 250.00 GBP
Expenses:Taxes:NI 50.00 GBP
Expenses:BIK 50.00 GBP
Assets:BankAccount 1200.00 GBP

IIUC what the end result is supposed to be.

Cheers,
Dan

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[Pedro F]

Thanks Dan, that makes a lot of sense and lines up with Ben's suggestion as well. I think in my case I'll keep the income leg separate as well in an "Income:Hooli:BIK" instead of adjusting the ":Salary" leg. This way I retain the distinction between the "real" salary and the benefits, but apart from that it should be the same.

I think I now have a way forward to continue my journey with beancount!

Many thanks,

Pedro