Sarah Bradford highlights tax exemptions which can be used to provide tax-free benefits-in-kind to employees.
----------------------
This is a sample article from our business tax saving newsletter - Try Business Tax Insider today.
---------------------
The income tax legislation contains a number of exemptions for benefits-in-kind. By making use of exemptions, it is possible to boost an employee’s remuneration package tax-free.
This article highlights ten popular benefits-in-kind which can be made available to employees free of tax and National Insurance contributions (NICs), and without any employer NICs charge either.
-
Mobile phones
Mobile phones are ubiquitous. A tax exemption enables an employer to provide an employee with a mobile phone, which can be used privately without an associated tax charge arising.
The exemption only applies where a mobile phone is made available for the employee’s use without ownership being transferred to the employee. Further, the exemption is limited to one mobile phone per employee. If the employee has more than one mobile phone which they can use privately, the second and any subsequent phones will be a taxable benefit.
However, no tax charge arises on a phone provided exclusively for business purposes. Where this is the case, non-business use should be prohibited and there should be no actual private use.
-
Trivial benefits
The trivial benefits exemption is a very useful exemption with potentially wide application. It enables an employer to provide low-value benefits to employees without triggering a tax charge.
Unless the employee is a director or other office holder of a close company or a member of their family or household, there is no limit to the number of trivial benefits that an employee can enjoy each tax year. For close company directors and members of their family or household, a cap of £300 per year applies.
As with most exemptions, availability of the trivial benefits exemption is contingent on the associated conditions being met. These are as follows:
-
The benefit is not cash or a cash voucher.
-
The cost of the benefit does not exceed £50. This will usually be the cost of providing the benefit. However, where the benefit is provided to more than one person, and the nature of the benefit or the scale of its provision means that it is impracticable to calculate the cost of providing it to each individual recipient, the benefit cost is the average cost per person of providing the benefit.
-
The benefit is not provided under a salary sacrifice arrangement.
-
The benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services.
The benefit can be used, for example, to provide tax-free Christmas and birthday gifts to employees.
-
Workplace parking
Parking can be expensive, and meeting the cost of employees’ parking can be a valued benefit. A tax exemption allows an employer to provide employees with workplace parking tax-free.
Workplace parking is the provision of a parking space for a car, van, motorcycle or a parking space or facilities for parking a cycle other than a motorcycle at or near the employee’s workplace. The exemption extends to the reimbursement of an employee’s parking costs, meaning that an employee can claim back the cost of parking in a commercial car park. The employer does not have to provide on-site parking for the exemption to apply – the parking can be in a nearby car park.
-
Late-night taxis home
A tax liability will normally arise if an employer meets the cost of an employee’s journey home from work. However, if the late working conditions are met, the employer can meet the costs of a taxi home where an employee works late.
The conditions are that:
-
the journey is made on an occasion when the employee is required to work later than usual and at least until 9pm;
-
these occasions are irregular;
-
by the time that the employee ceases work, public transport is not available, or it would be unreasonable to expect the employee to use it; and
-
the transport is provided by taxi or similar private road transport.
An employee can only benefit from this exemption for a maximum of 60 times each tax year.
-
Workplace meals
It is also possible to provide meals to employees without triggering a tax charge. A dedicated tax exemption enables the employer to provide meals to employees in a staff canteen or otherwise on the business premises. The employer can meet the cost without any associated tax liability provided that the following conditions are met:
-
The meals are provided on a reasonable scale.
-
All employees or all employees at a particular location are able to obtain a free or subsidised meal or a free or subsidised meal voucher or token.
-
If the employer runs a restaurant, café, hotel or similar, if the meals are provided in a restaurant or dining room at the same time as meals are being served to the general public, part of the room has been set aside for the staff and they eat their meal in that part.
-
The meals are not provided under a salary sacrifice arrangement or flexible remuneration arrangements.
The exemption also applies to light refreshments, such as tea and coffee.
-
Medical check-ups and health screenings
The tax legislation contains valuable exemptions for health screening and medical check-ups. The exemption is limited to one health screening assessment and one medical check-up each tax year.
For the purposes of the exemption, a health screening assessment is one designed to identify employees who may be at particular risk of ill health, and a medical check-up is a physical examination of the employee by a health professional for (and only for) the purpose of determining the employee’s health.
-
Annual parties and functions
The tax exemption for annual parties and functions is one with which most employers are familiar. It is often used to ensure that a tax liability does not arise in relation to the annual staff Christmas party; however, its application is not limited to Christmas events
The exemption only applies to annual events, such as an annual Christmas party or a similar annual function – it does not apply to one-off events. This can catch out the unwary. Further, it only applies where the cost per head of the event does not exceed £150. If more than one event each year, events will be tax-free as long as they fall within the limit. The £150 per head figure is a limit, not an allowance, and where exceeded, the full cost is taxable, not just the excess over £150.
-
Homeworking payments
Many employees are required to work from home some or all the time. Where this is the case, employers can make a tax-free payment to cover the additional costs of working from home.
The employer can either reimburse the actual additional costs of working from home (although this is likely to be time-consuming and difficult to calculate), or can pay a fixed amount of £6 per week (£26 per month) without the need for supporting evidence of the costs incurred. The amount is the same regardless of the number of days that the employee works from home.
-
Long-service awards
Employers are able to reward loyalty by providing employees who have at least 20 years’ service with a tax-free long-service award. The value of the tax-free award is capped and there are some conditions that need to be met to ensure that the award remains tax-free.
To qualify for the exemption, the award must be in a permitted form (which excludes cash, cash vouchers and credit tokens), and awards must not exceed the permitted maximum. This is £50 for each year of service.
Once an employee has benefitted from a tax-free long-service award, they are not able to benefit from another tax-free award for a further ten years – the exemption does not apply to a subsequent award if an award has previously been made to the employee to mark service with the same employer within the last ten years.
-
Recreational benefits
A limited exemption allows employers to provide employees with sporting or recreational facilities or the right to use such facilities without a tax charge arising on the benefit. The exemption only applies if the facilities are made available to employees generally.
The facilities must not be available to members of the public and must be used wholly or mainly by people whose right to use them arises from their employment. This means that whilst a workplace gym will fall within the scope of the exemption, paying an employee’s subscription to a private gym open to members of the public will not.
Practical tip
Consider making use of available tax exemptions to provide employees with tax-free benefits-in-kind, but beware that the exemption may be lost if provision is made through a salary sacrifice scheme.
