Tax Free Benefits in Kind

27th May 2020

Certain payments made by businesses on behalf of employees are tax free, so are useful profit extraction and flexible remuneration structures:

  • Employer pension scheme contributions (up to £40,000 per employee per annum, plus potential ‘catch-up’ from previous 3 years. This assumes your personal income is not above £200,000, you are not already drawing benefits from a private pension and your previous contributions have not exceeded your £1,073,100 lifetime allowance).*
  • Childcare:
    • Vouchers or employer supported independently provided childcare (up to £2,000 pa per child, depending upon your income),*
    • Places in nurseries on premises made available and managed by the employer,*
  • Provision of a company vehicle:
    • Any vehicle if for pool use on business related travel only.
    • A van (including a twin cab pick-up), for use:
      • For business related travel,
      • For ordinary commuting to and from work,
      • Insignificant private use.
    • A new electric car for 20/21 tax year (very low taxable benefit in kind from 21/22 tax years onwards), if zero emissions. *
    • A new electric van.
  • Use of a bicycle (and related safety equipment) for mainly home to work commuting and other business use, which is available to all employees (cycle to work scheme), *
  • Holiday purchase. *
  • Mobile phone (handset & calls/data) for both business and private use, where the contract is in the employer ‘s name,
  • Interest free loans of less than £10,000 throughout the year,
  • Free or subsidized meals provided on the employer’s premises, which are available to all staff,
  • Expenses incurred in the provision of any death in service life assurance lump sum, gratuity, or similar benefit given to an employee or to any member of the employee’s family or household on the employee’s death (no longer capped at x 4 salary),
  • Contributions towards ‘Use of Home as Office’ (£6 per week without the need to keep supporting evidence of cost for 20/21 tax year),
  • Scale rate meal/subsistence payments, in certain circumstances,
  • Contribution towards incidental overnight expenses (£5 per night UK, £10 per night overseas), when you stay away from home for at least 1 night on a work journey,
  • Job related living accommodation, supplies and services,
  • Uniform clothing,
  • Trivial benefits (not exceeding £50 individually, or £300 pa in total to directors of close companies), including a small gift in recognition of a particular event (eg marriage or birth of child), a seasonal gift (including non-cash vouchers) or provision of free tea and coffee.
  • Provision of a parking space at or near the employee’s place of work,
  • Provision of subsidised public road transport to and from work, which is available to all employees,
  • Christmas or other annual parties where the cost to the employer does not exceed £150 per attendee,
  • Sports facilities or gym made available to employees which are not available to the general public,
  • Certain work related training expenses,
  • Removal expenses resulting from a change in job, up to the first £8,000,
  • The personal use of an employer’s computer, in certain circumstances.
  • Guaranteeing a personal debt.
  • Allotment of approved share options.
  • Special security measures, where the employee faces a special job related safety threat.
  • Using the business purchasing power to obtain discounted personal goods/services, which are reimbursed by the individual.
  • ‘Credits’ used personally (eg air miles) that arise as a result of business purchases (at nil marginal cost to the employer, perhaps as a loyalty bonus for using company credit cards).
  • Mileage allowance not exceeding HMRC’s approved rates for business related travel (eg 25p per mile up to 10,000 miles pa).
  • Discounted employer goods or services or free access to employer facilities.
  • Health screening or check-ups.
  • Work-to-home travel when working late.
  • Counselling.
  • Shareholder advice in relation to buying the company’s own shares.
  • Retraining provision for redundancy.
  • Support for commuting for disabled staff.
  • Certain gifts and services received by the employee from third parties (eg customers).
  • Corporate hospitality, where it is a job requirement to attend with customers, etc.

Can be tax efficiently structured through payroll as a salary sacrifice arrangement (since April 2017). This is probably most relevant for non director/shareholder employees.

Some minor and irregular benefits in kind (eg gifts and vouchers over the tax free amounts, the cost of spouses attending an overseas business event, use of a company holiday flat) can be given, not tax free, but structured so that the employer pays the tax, rather than the employee, under a PAYE Settlement Agreement (a PSA).

 

Although not classed as benefits in kind, payments of certain cash amounts (salary, dividends, long service awards, redundancy pay, suggestion scheme awards, repaying directors loan account credit balances, capital repayments) can also be made tax free.

 

As with all exemptions provided under statute or extra statutory concession, care is required to ensure that the actual circumstances fall within the precise criteria laid down. Our tax team are able to assist clients in structuring transactions to fully utilise these ever-diminishing tax exemptions.

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