Selling a business?
Restructuring your company?
Research and development?
Looking for an accountant?
Got an HMRC tax enquiry?
Exiting a business?
Do you have trust tax issues?
Many benefits that employees offer their staff are treated as taxable benefits-in-kind, but there are some that are still tax free. This means they can be provided without the employee having to pay any tax or national insurance contributions (NICs) and, importantly, no employer NICs either.
Following the increase in the rate of employers’ NICs in the Autumn Budget, these perks are well worth considering for employers looking for ways to reward loyalty without significantly increasing costs.
What are the top tax-free employee benefits?
Mobile phones
An employer can provide an employee with a mobile phone which can be used privately without any tax charges. This applies provided the phone is owned by the company rather than the employee, and is ‘available for the employee’s use’, and the exemption is only available for one device. More than one phone being made available would trigger a tax charge. Note, there are no tax charges whatsoever arising on a phone that is only used exclusively for business purposes, with no private use.
Trivial benefits
So called ‘trivial benefits’ can be offered to an employee with no tax arising provided they are sufficiently low value. For example, some companies may gift employees a bottle or two of wine at Christmas and provided the value is below £50, it is tax exempt.
Trivial benefits cannot be cash or a cash voucher and cannot be provided as part of a salary sacrifice arrangement. The benefit can also not be provided as a form of reward in recognition of services provided by the employee.
Workplace parking
Free parking at a workplace or the provision of parking spaces at a nearby car park can be provided to employees tax-free. The definition of workplace parking includes provision of parking for a car, van, motorcycle or bicycle. If the parking space is located in an external commercial car park, the employee can reclaim the cost of parking in a commercial car park, it does not have to be on-site.
Late-night taxis home
Provided the employee can demonstrate that they were required to work later than usual, the cost of a taxi home is tax-free. There are strict conditions to meet, for instance the working arrangement must be an exception, and they must have been working until at least 9pm. It must also be late enough that taking public transport is either unadvisable for safety reasons or unavailable to the employee. There is a cap of 60 taxis a year per employee for this benefit.
Workplace meals
Free or subsidised meals can be provided to employees on site free of charge without it being a taxable benefit. This also includes snacks, fruit, hot drinks and other refreshments.
Conditions apply – all employees either at a particular location or throughout the company must be eligible for the benefit. The scheme cannot be operated through salary sacrifice. If the employer also happens to operate a restaurant and meals are provided in the same area as dining customers, staff must eat in a separate area set aside for their use.
Medical check-ups and health screenings
Although private health insurance is a taxable benefit, certain health screenings and check-ups can be provided tax free. These services are more limited and are restricted to a certain number or monetary value per year – for example a free dental review, a limited number of physiotherapy appointments, free eye test etc.
Annual parties and functions
The majority of employers know that each employee is entitled to a tax-free amount of £150 to use on a party or annual event. This tends to be used for the work Christmas party, but it can also apply to other events.
The event must take place annually and the cost per head must not exceed £150, however multiple cheaper events can also be held up to this total amount. It’s important to appreciate that the £150 is a limit not an allowance so if the cost per head is greater than this, the whole event becomes taxable, not just the excess.
Home working payments
If your employees are sometimes required to work from home, it is possible to make a tax-free payment to them as a home working allowance, which covers any additional costs of working from home. This can be done in two ways. Either by fully reimbursing the actual additional costs of working from home, or by paying a fixed amount of £6 per week (£26 per month). If you choose the latter option, you do not need any records of expenses or days worked at home; this is a flat rate entitlement.
Long-service awards
It is possible to give a very long serving employee a loyalty reward that is tax free. This is available to any employee with at least 20 years of continuous service. To qualify for tax free status, the value of the award must be no more than £50 per year of service and it cannot be made in cash or with vouchers. This award can only be given periodically, if an employee gets the award after 20 years and continues working for the company, they can’t have another one for at least another ten years.
Recreational benefits
Employers can provide employees with sports or recreational facilities without a tax charge arising on the benefit. This must be available to all employees at a site and not be within a facility that is open to the public. This means it is possible to provide a workplace gym that is tax free for employees, but paying for a gym membership subscription is not tax free and is classed as a benefit in kind.
As a time when employment costs are rising rapidly, finding ways to offer perks to employees without necessarily having to increase their salaries is very important. If you would like management accounting advice to explore the viability of introducing these benefits, contact us for further information about the range of services we offer.
