Are you unsure of the tax rules regarding different benefits and expense? Don’t get caught out! We’ve covered a range of benefits and expenses to help you…
Tax exempt if the following criteria is met;
- Occurs annually. For example a part to celebrate a 25th Anniversary is not annual so cannot be included.
- Open to all employees. If you have more than one location this can mean it must be open to all employees working at one location.
- Cost per head less than £150 (include non-employees when calculating cost per head). Cost includes transport and accommodation and VAT.
- Can include multiple parties if cost per head combined is below £150. If the combined total is over £150 then only one event can be included.
Not Tax Exempt
- Cost per head is over £150. The £150 is not an annual allowance so you don’t just have to report benefit on cost per head above £150 but the full cost of the party.
- Parties for certain staff groups e.g. Directors or Management only
Tax exempt if the following criteria is met;
- Board and lodging provided to carers in the home of the person they are looking after
- On premises accommodation when a worker may be required to work outside normal working hours for example a pub manager or stable worker.
- Each employee is treated as having a deemed payment £2,000 so can receive this may shares tax free. This deemed payment is usually allowable just once to an employee shareholder from the same Employer.
Not Tax Exempt
- The value of shares provided less anything the employee has paid for them (included the £2,000 described above) will be taxable. Note Employee shareholders with a material interest in the company are not entitled to the £2,000 deemed payment.
- Private use of equipment or services provided by their employer to enable them to take up or continue work. This could be a wheelchair or a hearing aid.
- Work use would be covered under the normal Expenses Exemption (if it is wholly, exclusively and necessary in the performance of the employee’s duties).
Third Party Goodwill Gifts
A supplier or customer could provide a tax-free gift to your employee without any tax implications. The gift must not be cash or a voucher that can be exchanged for cash. Sounds lovely? Maybe not…
- Goodwill entertainment if the person providing the entertainment is not the employer or a person connected with the employer. For example, if a business provides entertainment to its customers employees and or their family members.
- Certain gifts if;
- The gift is goods or a voucher / token that is only available of being used to obtain goods (i.e. it cannot be swapped for cash)
- Person making the gift isn’t the employer or person connected with the Employer (e.g. supplier would be OK).
- Its not in recognition of performance or anticipate performance
- Costs the donor less than £250
- Total costs made by the same donor to the employee (or the employees family or household) does not exceed £250 within a single tax year.
- Goodwill entertainment as recognition for service the employee has provided or anticipated to provide as part of their employment.
- Non-cash vouchers over the value of £250
- Other gifts over the value of £250
Note if you as an Employer facilitate the provision of awards to your employees from a third party you would be liable to report to HMRC and pay Class 1A NIC. Facilitating doesn’t include giving the third party a list of names but would include asking them to make the award or sharing the cost.
Also, if the third party awards your employee with a benefit that would incur class 1 NIC such as a cash payment or a cash voucher you as the Employer would be liable to report and pay class 1 NIC on the benefit even if you didn’t facilitate the provision of the award.
If the third part provides cash (or cash exchangeable goods) then the third part needs to pay PAYE tax to HMRC. You as the Employer must pay Class1 NIC on combined value of the award of the award.
For non-cash benefits (that are not exempt above) arranged by the third party the third part must account for the PAYE tax and pay Class 1A NIC. This should be done via a Taxed Award Scheme.
If you arrange the reward you must pay the Class 1A NIC but the tax will still be due to be paid by the third party.
Health-screening and medical check-ups
Once a year an employer can provide a one-off health screening assessment and one medical check-up without incurring any tax liability.
If an employee works past 9pm and this is not part of their normal working hours you can provide tax free taxis up to 60 times within a tax year if other public transport is not available or it would be unreasonable to expect the employee to take public transport.
Long Service Awards
Got an employee who is celebrating 20 years’ service with you? Did you know you can reward them with an article equating to £50 per year of service with no tax liability.
Checks you need;
- Maximum value of £50 per year of service
- Must have not provided a similar reward in the last ten years
Suggestion Scheme Awards
Awards under suggestion schemes are tax exempt if;
- Scheme is open to all employees under the same terms (or at least to a particular section of employees under the same terms)
- The suggestion made related to the activities carried out by the Employer
- The suggestion is outside scope of the employee’s normal duties
- Its not made at a meeting for making suggestions
- The award is only made following a decision to implement the suggestion
- The decision to give the award is not just for encouragement but also based on the degree of improvement the suggestion is likely to make.
- The award must not exceed 50% of anticipated net financial benefit during the first year of implementation
- Or 10% of the net financial been fit over a period of up to 5 years up to a maximum of £5,000. Any excess above this would not be covered by the exemption.
- You can offer up to £25 for each suggestion tax free as an encouragement reward. This is regardless of whether you decide to implement the change. (As long as it has some merit).
You can provide free or subsidised meals on the employer’s premises or in any canteen as long as meals are provided for staff generally, they’re on a reasonable scale and it is available to all employees.
Be careful if you are a hotel, catering company or similar. If you provide free or subsidised meals in an area that is also serving the public you this won’t be exempt. You need to have a designated area just for staff.
Medical treatment abroad
If your employee gets ill aboard you can cover their medical treatment or reimburse their medical expenses with no tax liability if they were abroad because of their employment. This also covers providing an insurance policy to cover such costs.
An employer can provide one mobile phone (including cost of line rental and call charges) without any tax liability.
Be careful – this exemption will cease if;
- Any of the services provided can be converted to money
- If you provide money to cover the cost of use of the employee’s personal phone this will be taxable.
Office accommodation, supplies or services
Accommodation supplies or services can be provided tax free if the private use is not significant. So if an employee uses the office printer to print off something personal as a one off you don’t need to report it and there is no tax liability. If the benefit is based away from the Employers site it does not cover the motor vehicles / boats / aircraft / or the extension / conversion or alternation of living accommodation.
You can provide your employees with parking at or near work with no tax liability.
Household costs for home-based Employees
As an employer you can pay £4 per week / £18 / month or £216 per year without supporting evidence tax free to employees who regularly work at home under agreed flexible working arrangement.
You can pay higher costs but will need evidence to show that the expenses is wholly due to expenses incurred from working at home. Alternatively, you can pay more if you have an agreement with HMRC and they have agreed a higher amount with you.
You can provide up to £500 of pension advice tax free.
Be careful – in order to be exempt this must be provided to all employees or at least all employees within a certain group e.g. all employees at a certain location or all employees nearing retirement.
Purchases on employer’s behalf
Do you get your employees to buy stuff on behalf of you – things like stamps – and then pay them out of petty cash. These do not face tax liability and are exempt from P11D.
Removal expenses and benefits
Has one of your employees faced removal expenses due to relocating for a new job, a change in job duties or change of job location? If so the first £8,000 of removal expenses and benefits would be exempt from tax liability. To qualify the benefits must be provided end of the year following the one in which the employee moved. Expenses included cover;
- Disposal or intended disposal of old residence
- Acquisition or intended acquisition of new residence
- Transporting belongings
- Travelling and subsistence
- Domestic goods for the new residence
- bridging loans
The employee doesn’t have to dispose of their old residence but must change their main residence to the new address. If the move is cancelled the exemption is reversed and all payments made would not incur a tax liability.
You can provide sports facilities to your employees without any tax liability as long as;
- the facilities are not available to the public
- They’re not provided on domestic premises
- They don’t consist of mechanically propelled vehicles or vessels such as motor boats or aeroplanes.
PAYE Settlement Agreement (PSA)
A PSA allows an employer to settle any PAYE tax and NICs due to HMRC on 3 types of expenses;
- Minor items
- Irregular items
- Items where it is impractical to operate PAYE on or to value for P11D purposes.
The employers pays the tax and NIC due in a single payment. Note the value of the benefit must be grossed up for tax purposes and NIC contributions are taken on the grossed-up value. There is no Employees NIC under a PSA.
Payment of a PSA is due by 19th October following the end of the tax year.
For example, for a basic rate tax payer a benefit of £80 would be grossed up to £100 (20% tax from £100 would give £80 benefit). Class 1B NIC would be calculated on the grossed-up value of £100.
A PSA needs to be in place prior to providing a non-cash voucher to ensure no Employees NI is due.
Any benefit reported on a P11D does not need to be reported by an employee on their tax return.
Tax Award Schemes (TAS)
Used by both Employers and Third Parties to directly pay HMRC for tax on non-cash rewards. In principle Employers would normally use a PSA so we find TAS are used mainly third parties for example when a supplier provides a non-cash voucher to its customer.
The amount of tax is calculated by grossing up the value of the non-cash award. The company making the TAS has the option to account for the grossed-up tax at either basic or higher rate.
E.g. a £100 voucher would be grossed up for £125 for basic tax rate or £166.67 for the higher tax rate.
Unlike a PSA, an employee is required to report any award covered by a TAS on their tax return. Although normally no tax would be due unless the individual us a higher rate tax payer and the third party has chosen to account for tax at the basic rate instead.
If you sign for a TAS with HMRC you agree to;
- Make a return of awards to the tax office
- Account for tax (at either higher or basic rate)
- Provide scheme certificates showing the grossed-up value of tax to some employees involved. This is all employees who get an award under a higher rate scheme and employees who require them for the basic rate scheme.
Class 1A NIC (Employers NIC)
Employers are required to pay Class 1A NIC (Employers NI) on most benefits.
If a benefit is tax exempt no class 1A NIC is due.
There are some benefits where Tax is due but not Class 1A NIC.
Benefits will either incur Class 1 or Class 1A NIC – and never both. Class 1 NIC is NIC due on earnings and includes primary (Employees) and secondary (employers). Class 1A NIC is NI due on benefits and is payable by the Employer at the end of the year. There are some exceptions where neither will be due for example;
- there are some benefits or expenses where Tax is due but not Class 1A NIC.
- Some company cars or Vans and fuel benefit. For example a car or van shared by 2 or more employees, or the cost of the car / van is split between 2 employees.
Payrolling Benefits in Kind
From April 2017 you can avoid reporting a benefit in kind on a P11D by taxing it through payroll instead. However, if you don’t tell HMRC you are doing this before the start of the year you will still need to report the benefit on a P11D.