The PAYE system for collecting tax from employees’ earnings was introduced in 1944 and has ensured that deductions from employees are paid over to HMRC. Employees have no option but to pay PAYE tax however there is a comprehensive list of benefits and payments that can be provided to employees without any tax consequences.
Tax free benefits can be used to motivate and retain employees. The following are all expenses /benefits that, assuming the expense is a tax deductible expense for the employer, can be paid tax free.
Health screening and medical checks ups
These can be provided once a year, however private medical insurance, cash plans or dental schemes are a benefit in kind and must be declared on P11D or included in a PAYE Settlement Agreement.
Incidental personal expenses
Small value personal expenses incurred by employees whilst away from their permanent place of employment of £5 in the UK or £10 overseas are tax free. This is to cover incidental expenses for which obtaining receipts is difficult, for example laundry, telephone calls, newspapers etc.
Interest free loans to employees
There are no tax consequences as long as the loan does not exceed £10,000.
If provided at or near the place of work, including the reimbursement of car parking fees.
Subsidised canteen facilities on site
Provided they are made available to all employees.
Company vans provided to an employee for travel between home and work. Any other private use, aside from an occasional private journey such as a trip to the municipal tip with attract a full benefit in kind. For the purposes of the legislation a double cab pick-up is classified as a van.
Christmas party or annual function
To the value of £150 per head. If spouses accompany employees, they receive their own allowance of £150. However if the cost of the function exceeds £150, the whole amount is taxable.
Trivial Benefits to the value of £50
The prime example of a trivial benefit is a turkey or similar gift at Christmas. However it is a little known fact that an employer can provide more than one trivial benefit in the tax year.
Employees can claim a mileage rate of 45 pence per mile for the first 10,000 business miles and 25 pence per mile thereafter, to cover miles incurred wholly, exclusively and necessarily in the performance of the duties. Mileage logs must be provided by the employee to verify the payment of a tax free mileage rate.
Electric car charge facilities
As electricity is not a fuel as defined by the taxes for benefit in kind purposes, employers can provide such facilities without any tax consequences.
Long service awards
Provided the service is more than 20 years and the award is no more than £50 per year of service. To qualify, the employer must purchase the gift. Cash cannot be paid to the employee, nor can the employee be reimbursed the cost of the gift. In addition an award must not have been made in the previous 10 years.
An employer provided mobile telephone covering data, minutes and texts is tax free on the basis that the contract for the provision of the phone is between the employer and the telephone company. The exemption to not apply where the contract is in the employees name or where a round sum allowance of paid to the employee to cover the cost of the business use of their own mobile.
An employer can provide sports facilities available for employees and their families, provided the facilities are not available to the general public.
Certain relocation expenses, up to a maximum of £8,000 are tax free. Allowable expenses include legal costs associated with a house move, the cost of replacing household goods, interest of bridging loans and hotel costs associated with the employee searching for new housing.
Employer pension contributions
If it is into an approved pension scheme.
Uniforms provided are not taxable if there is a permanent logo on the clothing.
If the employer provides food and drink for staff attending meetings over lunchtime, the food is tax free.
A tax free award is permissible where the scheme is open to all employees and the suggestion is made outside the scope of the normal duties.
An encouragement award is one that is made for a suggestion that has some special merit or reflects praiseworthy effort on the part of the person making it. The maximum tax free amount is £25.
For more information about providing tax free benefits to your staff, contact Paul Chappell on 03331 123456