Tax implications and employee benefits

18.06.2021
Simon De-Lacy Adams
Tax

As a business owner we are all too aware of the importance of the various ‘clogs’ in the business machine. One of the most important elements of this are your employees.

Employees wellbeing is increasingly becoming an important consideration for all employers.  Also, employees tend to look at benefits other than salary when considering where they wish to work.

Having all suffered the affects of the pandemic, I think it cannot be underestimated that a good benefits policy can improve workplace moral, boost productivity, and hope to set a tone for your business’ internal values.

While benefits in kind can take many forms, some are more cost efficient than others to provide and are more attractive to employees. It is therefore important you structure your benefits correctly.

As an employer you are required to report any taxable benefits in kind to HMRC at the end of the tax year, this is done by completing form P11D and a P11D(b).  Both forms must be submitted to HMRC by 6 July following the end of the tax year, by this date your employee will be provided with a copy of their individual form P11D.  Depending on their circumstances they may need to complete a tax return and report the taxable benefits they have received, and it could well impact on their tax position.  

So what can we look at as far as this is concerned? 

Let us firstly look at cost effective benefits and the four I would mention here are as follows:

  1. Private medical cover has been a common benefit in kind provided by businesses to their employees.  The cost can be relatively low, but the benefit received by the employee in utilising the cover can sometimes be priceless.
  2. If your employees work in front of a computer screen it may also be quite beneficial to offer to pay for an eye test.
  3. Mileage allowance payments are what you pay your employees for using their own vehicle for business journeys.  This is usually at 45p for the first 10,000 miles and therefore 25p for any subsequent miles.
  4. The journey from your employee’s home to their usual place of work is not a business journey.  If you are paying mileage rates, you should not pay for this journey otherwise a benefit in kind will be triggered.

Exempt Benefits

There are a number of benefits which can be provided to employees without triggering a taxable benefit in kind.  These are great opportunities to provide extra remuneration with no tax cost to either employee or employer.

Again, it matters how the benefit is provided, so you need to ensure you take adequate advice.  The type of exempt benefits to consider are:

  1. Mobile phone – providing a single mobile phone to an employee is an exempt benefit, and they do not have to use it just for business.
  2. Pension contributions - contributing to employee pension schemes is not subject to tax.  So long as the pension is a registered pension scheme, the contribution will be free from income tax and National Insurance.  So long as the contribution is wholly and exclusively for the purposes of your business, it will be deductible for corporation tax purposes.
  3. Workplace parking – this not only includes providing them with parking in your own facilities but extends to cover the cost of a season ticket at a nearby public car park.  This can be very valuable to employees who do not have a parking space outside your practice.
  4. Annual party – you can provide employees with an annual function without tax implications, providing some criteria are met.  Firstly, the cost of the party should not exceed £150 per head.  If there are two parties in the year, the £150 cost is applicable to both events.
  5. Long service awards – employees who have served for 20 years or more can be presented with a long service aware of up to £50 per year, without tax implications.
  6. Staff suggestion schemes – awards to encourage good suggestions can be given, up to the value of £25, tax free.  In addition, financial benefit awards can be given for suggestions which will save or make your business money.  These rewards are more generous and will be tax free up to an amount equivalent to the greater of 50% of the expected saving in the year after you implement their suggestion, or 10% of the expected saving in the first 5 years.  In both cases, the amounts are capped at £5,000.
  7. Trivial benefits – trivial benefits can be provided free from tax.  A trivial benefit is one for which the cost to the employer does not exceed £50.  It must also be provided for a non-work reason, that is, not ass a reward for work done.  An example could be the birth of a child, birthday, or personal achievement.

The trivial benefit rules can also be used to exempt things provided to employees, such as tea and coffee, flu jabs, and sweet treats.

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