Jennifer Adams considers which benefits-in-kind remain tax-efficient for both employees and employers.
With National Insurance contributions (NICs) increasing and the low rate of unemployment, many companies are looking at different ways to remunerate their current and prospective employees other than salary, bonuses and dividends.
When an employer provides an employee with a non-cash benefit, it is ordinarily taxable on the employee effectively as income. Also, the employer usually has to pay Class 1A National Insurance contributions (NICs) on the benefit at 13.8%, just like a normal salary. However, there are several benefits-in-kind that can be provided tax and NICs-free and, therefore, can be tax-efficient for both the employee and employer.
For a benefit to be classified as ‘tax-efficient’, it should normally be exempt from employee income tax and all NICs (employee and employers) and provide a tax-deductible expense from business profits for the employer. Examples of such exempt benefits include:
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Company mobile phones
There is no taxable benefit on providing a company mobile phone, even if used privately. However, the limit is one phone per employee, so phones can only be provided for family members if they are employees.
The contract must be between the company and the mobile phone contractor or broadband provider (if to be provided in the employee’s home), then provided the package cost is not affected by private use, and the private use is minimal, no benefit-in-kind arises.
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Parking
The provision of workplace parking is also exempt from tax and NICs. This covers not just a space in the employer’s car park but also the cost of a season ticket at a public car park close to work.
Similarly, the provision of motorcycle or bicycle spaces at or near work is exempt.
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Annual staff events
An employer can spend up to £150 per head over the year (including spouses or partners) on annual events. Invariably, this will be spent on the annual Christmas party, but the rules are not expressly restricted to that event. Therefore, a day at the races, a summer BBQ, or any combination etc. could apply, provided the aggregate cost falls below the £150 per head threshold.
Many directors of small companies are unaware that this amount can be claimed, even by a sole director.
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Interest-free loan up to £10,000.
Many companies, especially those based in London, pay their employees for the cost of travel season tickets, and they can do so as no benefit-in-kind charge is levied on any loan or advance less than £10,000. The borrower must work full-time for the company or any associated companies and not have a material interest (5%) in the close company or any associated companies.
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Provision of office or computer equipment
The provision of office or computer equipment, furniture, stationery, etc. away from the employer’s premises is also exempt, so long as it is provided solely to enable the employee to perform their employment duties and any private use is ‘not significant’.
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Homeworking expenses
An employer can reimburse an employee under voluntary homeworking arrangements up to £6 per week without needing to keep evidence of the employee’s additional costs, where employees regularly work at home under the arrangements.
- Work and safety clothes – for example, overalls and protective clothing.
- Health check - one screening and one annual health check are allowed.
- Eye tests and corrective glasses for VDU (e.g., for a work computer) or otherwise required by the health and safety at work regulations.
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Professional subscriptions
Payment for fees and subscriptions paid to professional bodies that regulate the profession, and the duties of the employment involve the practice of that profession.
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Trivial benefits
Such payments are tax and NICs-free, providing the cost to the employer is £50 or less to provide. They must also not be cash or cash vouchers (non-cash vouchers are allowed), are not provided as a reward for employees’ work or performance and are not provided as part of the terms of the employment contract.
Practical tip
HMRC provides a long list of non-taxable payments of benefits to employees on the Self-Assessment Help sheet HS207
