The Best Tax Perks For Directors

Sarah Bradford looks at opportunities for providing company directors with tax-efficient benefits.

The taxman sometimes gives as well as takes, and it is possible for directors to enjoy a number of perks tax-free. Taking advantage of the exemptions on offer provides an opportunity for directors of personal and family companies to extract profits in a tax-efficient manner. 

Some of the most popular tax-free perks are discussed below.

If you are the director of a family or personal company, it makes sense for the company to meet the cost of your mobile phone and provide it as a benefit-in-kind. As long as certain conditions are met, the director can enjoy the benefit free of tax and National Insurance contributions (NIC), there is no Class 1A NIC for the company to pay and the company can deduct the costs of providing the phone in working out its profits for corporation tax purposes – a winning outcome all round.

So, what do you need to do to ensure that the tax advantages are forthcoming? The first point to note – and this is crucial – is that the contract for the phone is between the company and the phone provider. Although the end result may seem the same as if the company simply pays the director’s mobile phone bill on his behalf or reimburses for payments he or she has made personally (in that the director gets the use of the phone and the company suffers the cost), the tax consequences are very different. The exemption only applies if the contract is between the company and the third-party phone provider and the phone is made available for use by the director without ownership of the phone being transferred to the director. So, to enjoy the perk tax-free, the company must contract with the phone provider, provide the director with the use of the phone (which continues to belong to the company), and pay the phone bills.

The exemption is limited to one phone per employee or director (so, phones can only be provided for family members if they too are employees or directors), and applies to all mobile phones, including smartphones (designed for making voice calls), but not to devices such as iPads which can be used for VOIP calls. 

This is a handy perk, but make sure the contract is set up correctly. 

The tax charge on company cars can be expensive, meaning it is often not worthwhile providing a director with a company car as a benefit-in-kind, unless it is a cheap, low emission car. 

Where the director uses his or her own car for business journeys, it is beneficial to pay a mileage allowance at HMRC’s approved rates. The allowance is tax-free in the hands of the director, and as long as the amount paid in the tax year is not more than the approved amount, it does not need to be reported to HMRC on the employee’s P11D. Mileage allowances for cars can be paid tax-free at the rate of 45p per mile for the first 10,000 business miles in the tax year, and at 25p per mile for any subsequent miles. Mileage allowances are also NIC-free as long as the rate (for cars) is not more than 45p per mile. 

Mileage allowances paid to the director are deductible in computing the company’s taxable profits, and the VAT on the fuel element (determined by HMRC’s advisory fuel rates) can be claimed back if the company is VAT registered and not using the flat rate scheme.

Childcare can be expensive. It is still possible for childcare vouchers and employer-supported childcare to be provided tax-free up to the exempt amount (£55 per week for basic rate taxpayers, £28 per week for higher rate taxpayers, and £25 per week for additional rate taxpayers). However, where the director is able to benefit from the new tax-free childcare top-up scheme, it is advisable to see what works best given their own personal circumstances (see www.childcarechoices.gov.uk).

The cost of parking, particularly in a city or town centre, can soon add up. Another tax exemption allows the company to meet the cost of parking at or near the place of work without a tax charge arising on the director or employee. Paying to park at a rate of £10 a day for 48 weeks a year costs a hefty £2,400 a year – certainly worth considering.

Making pension payments on the director’s behalf can be a significant and worthwhile benefit. As long as the employer contributes to a registered pension scheme, no income tax liability arises in respect of the contributions. However, employer contributions do count towards the director’s annual allowance for pension purposes, so it is important to check that the annual allowance available to the director covers both contributions by the company and the director personally. 

The contributions are generally deductible in computing the company’s taxable profits for corporation tax purposes. 

A separate exemption allows for the provision of pensions advice up to £500 a year. 

Even if the company is a personal or family company, it is still possible to take advantage of the exemption for annual parties and other annual events. The exemption is well-known and is usually applied in the context of Christmas parties, although it is not necessary for the function to be a Christmas party. 

The exemption applies to an annual party or similar function, and is subject to a cap of £150 per head. The ’per head’ figure includes guests (and there is no limit on the employee to guest ratio). Where there is more than one event in the year, the exemption applies to as many events as fall completely within the £150 per head allowance.

If the cost per head is not completely within the allowance, the amount is taxable as a benefit-in-kind in full and the cash equivalent of the benefit on which the director is taxed will include the cost of his or her guests. 

While the provision of private medical insurance is a taxable benefit, it is possible to provide an annual health screening assessment and medical check-up each year without triggering a taxable benefit. 

It is also possible for the company to meet the cost of ’recommended’ medical treatment to assist the director to return to work after an injury or period of ill health without triggering a benefit-in-kind tax charge. The exemption is capped at £500 a year. 

If the director has clocked up 20 years’ service, it is possible to take advantage of the tax exemption for long service awards and make a tax-free award of up to £50 for each year of service (so that is £1,000 for 20 years’ service).

The award can’t be in the form of cash, a voucher, a credit token or shares, but a traditional gold watch, a designer handbag or a painting (or whatever takes your fancy, as long as it is tangible moveable property) will keep the taxman happy.

The statutory exemption for trivial benefits allows a company to provide benefits costing not more than £50 tax-free and without any need to tell the taxman. For directors of close companies, tax-free trivial benefits are capped at £300 a year. The benefit cannot be in cash. 

This exemption can be fun and would allow the company to provide, say, a monthly tax-free treat costing up to £25 (such as flowers, a meal, a ticket to an event, a bottle of wine, etc.). 

By making use of the benefit and expenses exemptions, it is possible to provide tax-free perks to directors of personal and family companies. There are a number of exemptions available, allowing the mix of tax-free perks to be tailored to suit the individual.