Tax Free Benefits

Some benefits can be provided without any tax or NIC costs, such as:

• Pension contributions
• Company mobile phones
• Childcare Support
• Any benefits that are valued under £50 (known as “trivial benefits”).
• To qualify, benefits cannot be performance related, nor cash or cash vouchers.
• Additionally, directors are limited to a total of £300 per tax year
• Annual staff functions (provided the cost per attendee is less than £150)
• Bicycles purchased on a Cycle to Work scheme
• Workplace training
• Employee car parking
• Certain life insurance policies
  

Details of these tax-free benefits are outlined below in more detail.

Restrictions

Due to the rules on “Optional Remuneration” arrangements, many tax-free benefits – such as mobile phones – only benefit from exemption if provided “on top” of standard remuneration, rather than as part of a salary sacrifice scheme (as considered in further detail below where relevant).

Mobile Phone

One mobile phone can be given to every employee in the business – including you and any family members that are employed – and there is no tax or NIC regardless of whether the phone is used for personal calls, messaging, etc. It may also be attractive to employees to have a phone that is better than one they would otherwise have if they bought a phone personally.

It is also possible for the company to offer a second mobile phone to you and certain employees provided the phone has insignificant personal usage. In other words, the main reason for providing the the second phone to you is for business purposes. This would allow employees who want separation of home and work matters to have 2 mobile phones.

A tablet which allows you access to make calls via Skype or FaceTime isn’t deemed to be a mobile phone – it is treated as an employee use of a business asset.

Pensions Advice

Where the company pays for pension advice to be provided to employees, it is tax free up to £500 in value.

Life Insurance

Relevant life assurance is very similar to a typical life insurance policy. Policies usually pay out a sum to beneficiaries in the event the insured person (e.g. the business owner) dies.

Alongside the monthly tax cost savings, policies can also be written ‘into trust’ so that they are outside the scope of inheritance tax. Obtaining cover for the wider workforce can also be a great way to retain employees.

Anything except cash that costs less than £50

This is subject to specific restrictions detailed below, but in short you could buy anything via the business as a way to extract value – e.g. your favourite bottle of perfume/ aftershave, an Amazon gift card to buy something for your house or take your family for a meal whilst on holiday, provided it costs less than £50. This is an effective way to extract value from your business.

For you as a director, the total amount that can be spent per year on items like this is £300. For other employees, the amount is uncapped. You can be given up to £300 in “gifts” annually, provided certain conditions are met:

1. Each gift value must not exceed £50(includingVAT)
2. Each gift must not be cash or something that can be turned into cash. This means things like Amazon vouchers or supermarket vouchers are fine, provided they can’t be traded in for cash.
3. It must not be part of their contract or salary.
4. It must not be in recognition of services(i.e. Performance related)
5. It is not reimbursed.
   

They are also known as “Trivial Benefits”.

If family members are employed by the company, they can also be given up to £300 in gifts in the same way. If family members who are not employed are given gifts, this counts towards the £300 cap.

For other employees, the gift amount is uncapped. Giving benefits like this to staff can be massively rewarding for them, helping to achieve motivated staff and high retention levels.

Staff Functions

Provided the cost per attendee is less than £150, an event for staff – for example at Christmas – is not taxable on the employees. As an example, a business with 5 employees could each take a guest to an event. Provided the total cost is less than £1,500 it falls within the exemption detailed above.

This exemption can be aggregated over the year, so for example you could have 2 events costing £75 per head, and it would still be tax free.

Employee Car Parking

Paying for a car parking space for yourself or an employee can be very beneficial for city centre businesses where the cost of parking can be high. VAT registered businesses can also reclaim the VAT element of the cost, giving a further saving.

This can also be a very efficient way to reward employees who need to drive into a place of work and have to park in an expensive car park. The car park must be at or near the office.

Workplace Training

Work training can cover a wide range of areas that are wholly for business purposes, such as professional development and health and safety. Instead of incurring the cost personally, the business can pay for your training as a tax-free benefit.

Medical Treatment and Insurance

The company can pay for the following medical treatments and insurance as tax free benefits:

• Annual medical checks or screenings.
• An eye test if they are required by Health and Safety Legislation for employees who use a computer monitor or other screen.
• Glasses or contact lenses if they are required for monitor or screen work.
• Medical treatment for employees working overseas.
• Medical treatment or insurance for work only – this must relate to injuries or diseases that result from the employee’s work.
• Medical treatment to help an employee return back to work – capped at £500. To qualify, they must have been absent from work or assessed by a medical professional and deemed to be unfit for work due to injury or ill health, for a period of at least 28 consecutive days.

Other Tax Efficient Benefits

Outside of the ‘tax free’ benefits listed above, other benefits that can be provided by a company to employees in a tax efficient way are as detailed below.

Lunches and Snacks

Provided all staff are offered the option, providing lunches to staff at the business premises is tax free for the employees, and the business can claim corporation tax relief and recover VAT (where relevant) on the costs.

The conditions to qualify are that the lunches must be available to all employees, be ‘reasonable’, and provided at the business premises (e.g. canteen or kitchen area).

Workplace Training

Work training can cover a wide range of areas that are wholly for business purposes, such as professional development and health and safety. Instead of incurring the cost personally, the business can pay for your training as a tax-free benefit.

Childcare Support

There are three potential ways to help fund childcare in a tax efficient way:

1. Tax free child care is a scheme that allows you to save up to 20% on child care costs. The government will contribute up to £2,000 per year for each child in childcare. So in effect this gives a 20% discount on childcare costs up to £2,000 per child per year.
2. Childcare Vouchers–these are now only available if you signed up to a scheme(which is still operated by the company) before 4 October 2018. The scheme was more tax efficient than the new tax free childcare, so if you are eligible this should be considered too. This scheme is operated via ‘salary sacrifice’ and so provides an equivalent benefit to the ‘tax free’ benefits listed above.
3. Workplace Creche. Whilst not practical for most businesses, a workplace creche can be provided to employees with no tax or national insurance liability. So, if applicable, it is worth considering further.

Bicycles and equipment purchased on a Cycle to Work scheme

Bicycles and equipment can be purchased under a ‘salary sacrifice’ scheme so that the cost of the bike and equipment comes out of pay before being taxed i.e. it offers equivalent savings to the ‘tax free’ benefits listed above. This has a tax and national insurance saving for the individual (up to 45% for the highest rate taxpayers) and also gives a national insurance saving to the company. This saving can also be passed on to the employee to make it even cheaper for the employee to get the bike (and equipment).

The amount that can be spent is now uncapped (compared to the previous £1,000 which applied to most businesses). So a top quality bike and equipment (helmet, gear, lights, etc) can be bought with significant savings available.

The way the schemes work in practice is that there is an initial rental period (usually 12 – 24 months) after which the employee can had the bike back, buy it at its current value, or continue to rent it from the cycle scheme provider. Choosing the last option is usually the most cost effective, meaning you can own the bike outright after 4 or so years. You can find a cycle scheme provider and videos on how it works by going here: https://www.cyclescheme.co.uk/

As an alternative to the Cycle to Work Scheme, a business can lend or hire bicycles or cycling safety equipment to employees. They are tax free provided:

• The bicycles or cycling safety equipment hire is offered to all employees (they do not need to take up this offer to meet this condition); and
• The employee must use the bicycle and/or cycling safety equipment mainly for qualifying journeys.
  

Qualifying journeys can include from home to and from the workplace, from home to and from the train/tram station and back and between business premises. Cycling safety equipment includes cycle helmets, bells, bulb horns, lights, child safety seats and reflective clothing along with white front reflectors and spoke reflectors.

If the employee uses the bicycle or equipment personally at the weekend or during evenings or there is occasional use by an employee’s family, it will not be taxable on the employee if it is used mainly for qualifying journeys. Employees hiring or lending bicycles or cycling safety equipment are not expected to keep detailed records of time spent cycling or miles travelled. This exemption also covers a business giving employees a voucher for hiring bicycles and equipment.

If a bicycle or cycling safety equipment has been hired on or before 20th December 2020, the employee doesn’t have to meet the main use condition until after 5th April 2022. This exemption takes into account employees working from home due to COVID-19 restrictions who cannot use their bicycle or equipment mainly to travel to and from work.

 

On-Site Gyms and Sporting Facilities

As a way to promote the health and wellbeing of you and your staff, you can offer access to sports or recreational facilities, or non-cash vouchers which can only be used to access those facilities as a benefit. There is an exemption from tax if:

• The facilities are available to all employees;
• It is not open to members of the general public; and
• The facilities are used wholly or mainly by employees, former employees or family members of those groups.

If multiple businesses use one set of facilities, this does not trigger a benefit. This would apply to office gyms, shared gyms in communal office space and recreational facilities.

 

Business services provided to director/employees

If you or your staff make use of a business service, the taxable benefit is only the “extra” or “marginal” cost of providing the benefit to you rather than the entire cost. This would go into Box K on the P11D. It is subject to income tax and class 1A NIC. However, if the extra cost is paid for by the employee or there is no extra or marginal cost, no taxable benefit is triggered.

Example

An airline can provide its employees with a seat on a flight which isn’t full provided the employee pays for the extra costs incurred with them being on the flight such as the cost of an inflight meal and drinks. The same could apply to transport companies who offer free travel for their employees such as bus and train travel.

 

Taxable Benefits Still Worth Considering

It is also worth considering other benefits that can be offered to employees or taken by the business owner. Whilst not ‘tax free’ or available as a ‘salary sacrifice’ scheme, they can have other benefits, such as:

1. You may get better rates or premiums for bulk buying for a number of individuals
2. Increased well being and productivity of staff
3. Better quality products and rewards that employees would otherwise get if they had their own policy or didn’t have a policy at all.
4. It’s just a good employee perk!

Specific examples of the types of products worth considering are:

1). Medical cover. In addition to the benefits listed above:

• Many policies have discounted gym memberships, offers and promotions for mental and physical wellbeing.
• Some policies allow members to reclaim dentistry and optician costs. This can be hugely beneficial for the employee and in some cases may outweigh the tax cost of having the benefit.
• Policies give quicker and no cost access to care in the event of illness or injury. Again this can be very valuable in giving employees top quality support in times of need.

2). Shareholder protection insurance. This type of policy will allow things like remaining shareholders to buy out the family of a deceased shareholder.

3). Critical illness cover or income protection insurance. Again, whilst taxable on the employee, it can be hugely incentivising for employees to have things like this covered by the company. Another taxable benefit still worth considering is Living Accommodation which is covered below in further detail.

 

Living Accommodation

If your company is providing you or your staff with living accommodation, it is a taxable benefit unless one of the exemptions apply. The cost includes Council Tax, heating, lighting, cleaning, repairs, furniture for daily use, gardeners and water and sewage charges if paid for by the employer. There are certain exemptions for the costs of furniture, heating, lighting and maintenance costs such as if a close relative uses the property and it is not job related.

In certain circumstances, the tax cost can be low in comparison to the benefit received from living in an expensive property rent free. Calculations should be undertaken to determine the saving.

In most cases where the property is valued more than £500,000, the company will not be subject to the Annual Tax on Enveloped Dwellings (ATED). The company would need to claim the exemption via an annual ATED relief declaration form. The director / employee must not have more than 10% of the shares in the company for the exemption to apply. However, living accommodation is tax free if one of the following circumstances applies:

• If the employee cannot work properly without the accommodation such as agricultural workers living on farms;
• An employer is usually expected to provide accommodation to people doing that type of work such as a manager living above a pub; or
• An employer needs to provide accommodation to protect an employee because the type of work they do means that there’s a special threat to their security.

For directors to receive tax free accommodation, they must work full and own less than 5% of the shares.

 

 

Other Considerations

Business Assets & Private Use

If you are considering purchasing an asset that will have a business use, you should consider if you can pay for it via the company as an effective way to maximise the value you take out of your business. Where appropriate the savings could include income tax, NIC, corporation tax and VAT.

Whilst a tablet/ iPad has the capability to make video and voice calls, it cannot be treated as a mobile phone and fall into the mobile phone exemption.

The asset must be bought and used primarily for business purposes. It will be taxable on you if there is significant personal use, little or no requirement for you to have an asset for your work or it is a reward for your employment.

In some cases, the personal use of the asset may be exempt despite the personal use exceeding the business use. This would only apply if the private use is secondary to the use for work purposes.

Example

If your role requires you to use a laptop for most of the day, it will not be taxable if you use the laptop for personal use in the evenings or weekends. Clearly your personal use would be insignificant to the business use.

Compare this to an individual who works in a trade like manufacturing and only needs a laptop for invoicing and timesheets but has some personal use of the laptop. HMRC will allow personal use of the laptop provided you need the laptop to carry out the duties of the employment even if the amount of time spent on private use exceeds the business use. The laptop must be sufficient to carry out the invoicing and timesheets. You wouldn’t be able to buy an expensive laptop which you want to use for your film editing hobby and claim it was for business purposes as you wouldn’t need that spec of laptop to carry out your business duties.

One way in which a company can protect itself from such a tax liability is by documenting and distributing Private Use of Asset policies. If employees found to have exceeded the personal use limits in breach of the company’s policy, a liability for PAYE obligations can be avoided.

HMRC will often require to see evidence that the policy has been circulated – ensuring employees sign a policy document can be an effective means to achieve this.