TOP 10 TAX-FREE BENEFITS FOR SMALL EMPLOYERS
Is it really possible to get something for no tax cost from your employer? It might surprise you know that the answer is yes!
There are, in fact, many tax-free benefits that an employer can provide their directors and employees. The full list can be found here. However, many of them are only applicable to very large employers. They'll employ their own army of accountants to work out the most tax-efficient way of remunerating their employees.
I just wanted to concentrate on the small employer/owner managed businesses. Therefore I have omitted the benefits which only large employers can afford, such as canteen and sports facilities.
Here are my suggested top 10 tax-free benefits which are most applicable to small employers. None of these benefits will result in a PAYE or NIC liability for the employee or employer:-
1. TAX FREE CHILD-CARE VOUCHERS
Top of this list is qualifying childcare vouchers.
These can offered to directors/employees up to £55/week tax-free. Those costs borne by your employer that exceed £55/week will be taxable.
For full details of the voucher scheme click here
Estimated tax-free benefit - £2,860
2. INTEREST-FREE LOANS UP TO £10,000
Directors are allowed an interest-free loan from the Company for any reason up to £10,000.
Estimated tax-free benefit £500
Warning:- If the loan is not repaid to the Company within 9 months of the end of the Company's year end then the Company will liable for s455 tax. This is calculated at 25% of the loan which has not been repaid within 9 months of Company's year end.
Tax Tip:- Use the interest-free loan as a way to assist you to fund your short-term borrowing needs. That way you can ensure the loan is repaid within 9 months following the end of the Company's financial year thus avoiding the s455 tax.
3. BICYCLES AND CYCLE SAFETY EQUIPMENT
This is a great benefit for anyone interested in cycling.
The benefit of a bicycle and/or cyclist’s safety equipment (or a voucher to obtain these) provided to you, is completely free of tax. You must comply with the following to be eligible:
• such bicycles and equipment are available generally to employees of your
• your main use of the bicycle is for journeys between home and work or
Tax Tip: - You should note that you are not required to keep a record of your journeys from home to the office vs private use and it is the employers responsibility to police the usage.
The benefit of a meal or refreshments provided to you after you have cycled to
work on a day designated by your employer as a ‘cycle to work’ day is also non-taxable.
Estimated tax-free benefit - £1,000
For full details of the Cycle to Work Scheme and to register click here.
4. MOBILE PHONES
You are allowed one mobile phone provided by your employer and any line rental for and calls with that phone paid directly by your employer will be tax-free.
Warning:- Money your employer pays you to use your own mobile phone is taxable.
Warning:- A mobile phone provided to a member of an employee’s family or household is taxable (where that family member or member of the household is not also on the payroll).
Estimated tax-free benefit - £150 (assuming only one director employed)
Although the estimated benefit is only £150, I have placed this benefit high in the list because of its almost universal application to small businesses.
Tax Tip - where your partner/spouse/child IS employed full or part-time to carry out secretarial/filing duties, they can be provided with a mobile through the business and not pay tax on the benefit.
5. Christmas or annual parties
Annual parties or alternative functions of a similar nature, such as a Christmas dinner and a summer party, which are open to staff generally and costing no more than £150 a head in total to provide.
Estimated tax-free benefit - £150 (assuming only one director employed)
Again, although the estimated benefit is not great, it is higher in the list because of its universal application.
Tax Tip - Even where your partner/spouse/child is employed part-time to carry out secretarial/filing duties, they are also entitled to an annual party allowance of £150. So if your Company employs just you and your spouse/partner then you have a budget of £300/year to spend on your "annual parties". Try and formalise the party as a works outing by recording the booking in the company minutes. And make sure the company pays directly for the meal, otherwise it is an expense to be repaid to you, as director, which may not be allowable.
6. Staff suggestion schemes
a) Encouragement awards
An encouragement award is one that is made for a suggestion which has some special merit or reflects praiseworthy effort on the part of the person making the suggestion. The permitted maximum for an encouragement award is £25. If the encouragement award exceeds £25 the excess over £25 is taxable.
Tax Tip - It should be noted that the £25 is for each suggestion. So the award is not restricted to £25/year/employee.
Estimated tax-free benefit - £100 (assuming 4 suggestions/year)
b) Financial benefit awards
This is given where an employee makes a cost saving suggestion and the suggestion is implemented.
The amount of the award must not exceed the lower of £5,000 or 50% of the expected net financial benefit
There are additional conditions which apply to financial awards.
- The scheme must be open to all employees or all employees within a department
- The scheme is not open to those employees whose normal job would be identify such savings/inefficiencies.
Estimated tax-free benefit - maximum of £5,000.
The provision of car or motorcycle parking space, or facilities for parking bicycles, at or near the employee’s place of work is free of tax.
This is the case even where the parking space is used by the employee at the weekend for shopping or going out for an evening meal.
Estimated benefit - £1,500
8. Payments by your employer towards additional household costs where you work at home
Payments made to you by your employer for your reasonable additional household costs if you work at home regularly, are exempt from tax and you do not need to enter them on your tax return. You need to work at home by agreement with your employer instead of working on their premises.
Warning:- The exemption does not apply if you just take additional work home in the evenings.
Your employer may pay you up to £4 a week without you needing to keep supporting evidence of the cost. They can pay more where your costs are greater, provided you keep supporting evidence to show that the payment is wholly for additional household expenses incurred in working at home or where your employer has agreed a figure with the Taxman.
Tax Tip:- Work out the additional costs of working from home. Where these exceed £208/year, retain the supporting documentation and agree to be reimbursed the greater amount,
Estimated tax-free benefit - minimum of £208
a) Overnight allowances
Payments that your employer makes for personal expenditure, up to certain limits, when you stay away from home for at least one night during a business journey is tax-free. The maximum amounts that may be paid without any tax consequences are:
• £5 a night for each night away during business journeys anywhere in the UK (Great Britain and Northern Ireland)
• £10 a night for each night away during business journeys outside the UK.
If the maximum for a business journey as a whole is exceeded, the full
amount paid for that journey is taxable.
Estimated tax-free benefit - away.£200 depending on the number of times you work away
b) Spousal Accompaniment
Where a director’s/employee's spouse or partner accompanies the director on a business trip abroad because the director’s health is so precarious that the director could not undertake the foreign travel alone, the expenses borne by the employer for the spouse’s or partner’s travel on that journey will not be taxable.
Estimated tax-free benefit - from £500 per trip.
c) Disabled employee travel
For disabled employees - assistance with the cost of travelling between home and work, or to and from a place where work-related training is provided (including the reimbursement of travel expenses) are tax-free.
In addition, a car provided for these purposes is not taxed if:
• you are disabled, and
• the car has been adapted to the needs of your disability (or, if you are unable to drive a car with manual transmission, is equipped with automatic transmission), and
• other private use by you or anyone else is prohibited, and
• there is no other private use of the car
Estimated tax-free benefit - from £3,000
10. Medical costs
All expenses incurred in providing you and your employees with a health screening assessment and medical check-up per tax year are completely free of tax.
Estimated tax-free benefit - £200
The cost of necessary medical treatment abroad paid for by your employer, or paid by you and reimbursed to you by your employer, where you fall ill or suffer injury while away from the United Kingdom in the performance of your duties is also tax-free.
Estimated tax-free benefit - depends on the treatment.