Certain benefits and expenses payments may be provided tax-free to employees, because
- there is a PAYE Settlement Agreement (PSA) in place, which means the employer picks up the tab; or
- there was a dispensation in place from 2015/16 (or prior to that); or
- the benefit or expense is covered by a statutory exemption or extra-statutory concession.
There is no income tax or NIC on items covered by a PSA or dispensation; similarly there is no income tax on benefits and expenses covered by concessions or exemptions.
We explore some examples of common tax-free benefits and expenses we often see locally.
Expenses incurred by the employer to provide a pension to an employee (or family member of the employee) are generally exempt from income tax or NIC.
Health screening and check-ups
The expenses of providing employees with a maximum of one health screening assessment and one medical check-up a year are exempt. The exemption does not cover medical treatment, through employers may pay up to £500 towards medical treatment tax-free, if the employee has been absent from work due to illness for at least 28 days and the treatment has been recommended to assist the employee's return to work.
Welfare counselling made available to all employees on similar terms, is exempt from tax. This does not include medical treatment (see above), legal advice, financial advice (other than debt counselling), or advice on leisure & recreation.
Bicycles and cycling safety equipment
The provision of bicycles and associated safety equipment is tax exempt if the equipment is made available to all employees (not all employees actually have to take up the offer) and used mainly for "qualifying journeys" (travel between home and the workplace, or between workplaces).
There is no income tax on the provision of a mobile phone to an employee, or the cost of any line rental or private calls paid for by the employer, provided the contract is in the employer's name.
Electric car charging
The costs of providing electricity, including the costs of providing the charging point, are exempt from income tax in the hands of employees.
The provision of a parking space (for a car, motorbike or bicycle) at or near the employee's place of work is exempt from income tax.
Subject to certain conditions, removal or relocation expenses of up to £8,000 per move may be funded, tax-free, by the employer.
There is an exemption up to £55 a week for the provision of childcare vouchers or if the employer contracts directly with a commercial nursery to provide qualifying childcare.
This new scheme was rolled out in 2017/18 and is also available to the self-employed. More details here.
"Job related accommodation" may be provided to employees tax-free if:
- it is necessary for the proper performance of the duties of employment; or
- the accommodation is provided so the employee can perform their duties in a materially better way and it is a type of employment where it is customary for employers in the business to provide accommodation; or
- there is a threat to the employees' security and special security arrangements are in force and the accommodation forms part of those arrangements.
More restrictive rules apply if the employee also happens to be a director of the company (or an associated company).
Employees (including directors) may be paid "mileage" for journeys they make in their own car for business purposes. No taxable benefit arises on payments up to HMRC's authorised mileage rates.
Incidental overnight expenses
Employers can make payments to employees for "personal incidental expenditure" when they are required to spend one or more nights away from home on business. The maximum amounts that can be paid tax-free are:
- £5/ night for business journeys in the UK; and
- £10/ night for business journeys outwith the UK.
Home working allowance
Employees may be reimbursed tax-free for additional household expenses incurred when they are working from home. There is a flat rate allowance of £4 per week or £18 per month.
Employer funded training
Costs of work-related training borne by the employer - including associated travel and subsistence expenses and other incidental expenses - are generally exempt from income tax. The exemption is quite wide-ranging, covering the full range of practical and theoretical skills and competencies the employee may reasonably be required to need in their current or future roles with the employer.
Long service awards
Long service awards to mark service of at least 20 years are exempt, provided no similar award has been made to the employee within the previous 10 years. The award cannot be made in cash and the cost of the award must not exceed £50 for each year of service.
Christmas parties - and other staff functions
Christmas parties and other staff functions which are open to staff generally and which cost no more than £150/ head to provide are not taxable.
Goods sold at a discount
Employers may sell goods to their employees at a discount to the normal market value. Provided the amount paid by the employee is more than the cost to the employer of acquiring/ making the goods, no taxable benefit arises.
From 6 April 2016, most benefits costing under £50 will not be taxable provided that:
- the benefit is not in the form of cash or a cash voucher;
- it is not given in return for work done or to be done; and
- the total value of trivial benefits accruing to the employee is less than £300 for the tax year in question.
This article just gives some of the really common examples of exempt benefits that we often encounter; there are many other benefits that can be paid tax-free too, in certain circumstances. For further details, contact our tax team today.