Maximising your tax free benefits

Here are my top 10 tax-free benefits that all small business owners should know about. No PAYE or NI liability for the employee or employer, and no P11d’s to file to HMRC – what’s not to like?

1. Employers providing employees with the use of a mobile phone

A company can provide one mobile phone per employee which can be for private use. Just make sure the contract is between the company and the supplier and ownership of the phone doesn’t pass to the employee.

2. Social functions and parties

Sounds fun. What does it cover? To be exempt from tax, the party or social function must be all of the following:

  • £150 or less per head. Be careful, if you go over this for the event, the WHOLE amount will no longer be exempt.
  • annual, such as a Christmas party or summer barbecue (so not an impromptu Friday night down the pub)
  • open to all your employees

So even if it is just two directors in your company, don’t forget that’s £300 available as a tax-free benefit.

3. Bikes and cycling safety equipment

As an employer, lending or hiring bikes to employees doesn’t count as an expense or benefit – as long as they’re available to all employees and mainly used for getting to work. So they are completely tax-free. For full details of the Cycle to Work Scheme and to register click here.

4. Trivial benefits

Sounds interesting. What are they? A trivial benefit is something you give to your employees that ticks all the boxes below:

  • It cost £50 or less
  • It isn’t cash or a cash voucher
  • It isn’t a reward for their work or performance & isn’t in their contract

How many a year can I give? Directors can’t receive trivial benefits worth more than £300 in total a year but there is no limit to the amount for other employees. Go crazy!

5. Subscriptions and Professional fees

How does it work? The fees are tax-free if the employer pays the organisation directly or if the employee pays the fee/subscription and reclaims it from the employer.

What organisations does it cover? There is an HMRC list, imaginatively known as ‘List 3’ and if the body or organisation is on it, then the fees are exempt from tax. Check if your organisation is on the list here.

6. Pension advice

What does it cover? If an employer provides pension advice to its employees or reimburses the costs of pension advice incurred by the employee, the first £500 of the cost is exempt from Income Tax (in any one tax year).

What advice is included? It covers advice on general financial and tax issues relating to pension arrangements or pension funds allowing employees to make informed decisions about saving for their retirement.

Any catches? The company must make it available to all employees, so certainly, something a sole director should be considering!

7. Sight Test

What is covered? Health and safety legislation requires an employer to pay for a sight test for an employee who uses a computer monitor or other screen if they request it. The cost won’t incur National Insurance charges, regardless of whether the employer or employee arranges the test.

8. Gifts from clients up to £250 per year per client

If you happen to be lucky enough to have some lovely, generous clients.

9. Parking

What is covered? The provision of car or motorbike parking space, or facilities for parking bikes, at or near the employee’s place of work is tax-free.

Even better this is still the case even where the parking space is used by the employee at the weekend for shopping or going out for an evening meal.

Working late? A taxi home after occasional and irregular late-night working can also be claimed as a tax-free benefit.

10. Medical Screening and Checkup costs

What’s covered? 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.

Any limitations? Only one health screening assessment and medical checkup in any tax year.

What next?

Of course, you may want to reward or incentivise your staff with more than the tax-free benefits we talk about here. Take a look at our blog on PAYE Settlement Agreements to find out how you can manage the tax implications of giving your staff benefits in kind.

Here’s the small print:  The only thing constant in tax is that the rules often change! At the time of publishing all the information is in current UK tax legislation but to be sure, get in touch and we will be happy to keep you up to date.