Benefits in kind can be a valuable addition to your employees’ overall remuneration package. Many employers may not be aware that there are a range of benefits in kind that they can provide to their employees without incurring any liabilities either to themselves or to their employees. This briefing gives an overview of some of the main tax free benefits in kind that are available.
Christmas and Annual Parties
Nowadays almost every employer will provide an annual function whether it is to reward employees for meeting their annual targets or a morale building exercise. As long as this is generally open to all staff to attend and the cost is no more £150 per head there will be no tax chargeable. Employers can provide more than one function in the year tax free provided the total cost of these functions does not exceed the £150 per head limit. If these events are open to spouses as well as employees it is the cost per head rather than the cost per employee that is pertinent.
If there is more than one function during the year and the total cost of all functions is greater than £150 per head, you can choose which functions are exempt in order to maximise your allowance. For example, during the year ended 5 April 2018 3 functions were provided: Spring Ball in May at £50 per head, Bank Holiday Barbeque in July at £80 per head and Christmas Party at £100 per head. It doesn’t matter that the Christmas Party occurs latest in the year, employer can choose to allocate the Spring Ball and the Christmas party to the exemption with the result that only the Bank Holiday Barbeque would result in a Tax and National Insurance cost.
Late Night Transport
Occasionally employees will have to work later than usual due to unforeseen circumstances e.g. order deadlines. The provision of a taxi home will be a tax free benefit if all of following conditions are met:-
The facts of each case should have to be looked at separately in deciding on whether or not the benefit is tax free. The final condition that must be met is that the employee must not be provided more than 60 journeys per year.
Travel between Home and Work
There is minimal scope for travel costs to and from work to be provided as a tax free benefit. In addition to the late night transport as explained above, if an employee normally travels home in a shared car scheme but due to unforeseen circumstances, e.g. absence or a training course, this arrangement has broken down then travel can be provided by the employer tax free, subject to a maximum of 60 journeys per year. There will also be a tax free benefit if employees incur any additional travel costs or take overnight accommodation near their permanent workplace due to public transport strikes or other industrial action.
Some employers provide employees with the benefit of a works bus from home to work and will be tax free provided:-
Some employers have initiatives to encourage workers to cycle to work. If this is the case then, provided the scheme is offered to all employees and the main use of the bicycle and associated equipment is for journeys between home and work, no tax charge will arise on providing the bicycle and necessary safety equipment. Refreshments and meals can also be provided tax free to employees who have participated in the initiative.
If you have any disabled workers then the provision for assistance with the cost of travel between home and work and between workplaces is a tax free benefit.
There is also a tax free benefit given for employees who work offshore on oil rigs or gas platforms and due to timing of transport between the mainland and the offshore premises it is necessary for the employees to make overnight accommodation arrangements near the departure point.
Purchases on Employers Behalf
In most cases businesses are run in such a way that items such as stamps or other small stationary items may only be bought as and when required. It is frequently the responsibility of certain employees to purchase these items and often they will pay for these items from their own pocket with the expense reimbursed by the employer from petty cash. As the employee has not received any money of their own there will be no taxable benefit in kind arising on the employee.
Office Accommodation, Supplies or Services
Office accommodation, supplies or services utilised by employees in the course of carrying out the duties of their employment will not be a taxable benefit provided any private use is insignificant and the only reason for provision is to enable the employee to carry out the duties of their employment. This exemption does not apply to the provision of a motor vehicle, boat or aircraft nor the provision, construction or alteration of living accommodation.
Working from Home
When an employee regularly works at home an employer may pay up to £4 per week (£208 per annum) without having to provide any evidence of the additional costs employee incurs. However, if the employer pays more than £4 per week, supporting evidence will have to be retained to show the payment was wholly in respect of the additional expenses incurred by the employee when carrying out duties at home. Examples of costs that would be covered by the exemption include increased heat and light costs, metered water supply, household insurance and possible broadband internet access.
Alternatively the employer will have to seek an arrangement with their HMRC office in order to pay the higher figure without retaining supporting evidence.
Removal Expenses and Benefits
Nowadays it is very rare that employees will spend their working life in the same job or with the same company. Employees change job more often or sometimes their duties are changed requiring relocation. The first £8,000 of qualifying expenses and benefits will be exempt from tax and NIC. In order for this exemption to be given the employee must vacate their main or only residence and the new residence must be within a reasonable daily commuting distance of the new workplace. The employee does not have to dispose of their old residence but if the relocation is cancelled and any relocation expenses have already been paid on the employee’s behalf ,or reimbursed to the employee, the expenses will become taxable.
The main groups which qualify for exemption are as follows:-
The provision of one mobile phone provided by the employer to the employee including line rental and the cost of any private calls paid for by the employer are not taxable unless they can be converted into money by the employee. The contract must be in the employers name and be paid directly by the employer to be a tax free benefit. As a mobile may have two SIM cards e.g. one for the handset and another for the hands-free unit in your car; as long as the number is the same for both then there is no tax charge, however if there are two separate numbers this represents two separate phone connections.
If an employee is issued with more than one mobile phone employees must ensure only one is available for private use, all other phones must be for business use only and it can be proved that any private use is insignificant.
The use of smart phones has been the subject of debate over the years due to the fact that, whilst their primary function is that of a mobile phone, they perform extra features such as E-mail, Instant Messaging and more. For a period HMRC viewed these as computers meaning that their provision was treated as a taxable benefit in kind. However, they eventually saw sense and accept that they are no more than a modern phone and the exemption that applies to more basic phones now also applies to smart phones.
Equipment for Disabled Employees
When an employer provides equipment e.g. wheelchairs for disabled employees to enable employees to perform the duties of their employment there is no tax charge arising for private use of the equipment.
Long Service Awards
When a company decides to reward directors or employee for long service the cost will be non taxable provided it is reasonable and the reward is for a suitable time period. The period should be 20 years or more and the director or employee must not have had a similar reward within the previous 10 years. A reasonable cost should not exceed £50 per year of service.
Medical Treatment Abroad
As businesses now operate globally it may be that directors or employees may have to travel abroad for business purposes. A non taxable benefit arises if the employee is involved in an accident while abroad and the employer either pays the medical costs or reimburses the employee for the cost of medical care. It is also non taxable if the employer arranges for medical insurance cover to protect them against any unforeseen medical expenses that arise whilst they are abroad.
The provision of parking for cars and motorcycles and facilities for safely parking bicycles on or near the businesses premises is a tax free benefit provided it is available to all employees.
Re-training Expenses and Courses
An exemption is given when an employer meets costs for employees who are about to leave or have left their post in the previous year to attend courses to increase the chances of that employee finding alternative employment. If the employee has not left at the time the course starts they must leave within two years of finishing the course. The exemption ceases if the employee is re-employed by the same employer within two years of the course finishing and HMRC must be informed of this within 60 days of this re-employment.
The exemption is only available if the employee has been in employment with the employer for at least two years at the time the course commences. The opportunity to attend the course must be made available to all employees in a similar position. The expenses which are exempt are:
Work Related Training Expenses
In order for employees to keep up to date with developments in there field and gain the necessary qualifications on the job training may be required. Payments made by employers on behalf of the employee or expenses reimbursed to the employee will be tax free benefits.
The exemption is available for both internal and external courses and extends to a wide range of training materials including video tapes and CD’s. Travel and subsistence costs and the cost of any additional childcare if relevant are also covered by the exemption.
Meals and Food Vouchers
Previously exempt from income tax and national insurance, this relief was scrapped from April 2013 so the provision of meal vouchers (also known as luncheon vouchers) is now subject to tax and national insurance.
Many employers now provide childcare for their employees and in some cases such provision is not treated as a taxable benefit in kind. The following three scenarios benefit from the tax free treatment subject to certain conditions:
If the value of the childcare vouchers or other childcare provisions exceeds £55 a week then the excess will be taxed. This childcare includes registered childminders and out of hours clubs run on school premises. There are a number of conditions attached to the tax free provision of childcare by employers and more detail on this can be found on the HMRC website.
Some employers provide the use of sports facilities to their employees and subject to certain conditions the cost of providing these facilities can be treated as non-taxable for benefit in kind purposes. Provided the facilities are available to all employees (and their families/members of their household is so desired) then the provision will be tax free. This exemption does not apply to:-
Considerable care will be needed in planning the remuneration offered to your employees on top of their salary. Frequently employers are not aware that certain exemptions exist or that certain benefits are actually taxable. There are a number of traps for the unwary.
As ever, tax is not straightforward. If you would like to discuss the treatment of benefits in kind in detail and how it might affect your business, please do get in touch.