A guide for employees on the tax implications of accepting common employee benefits.
Most employers provide a range of benefits in kind to their employees. You may be able to choose which benefits to take up, so you should be aware of the different tax and national insurance (NI) implications of each benefit you pick.
As some benefits, such as cars, are provided over a number of years, you need to know how the associated tax bill may change in the future.
The table lists the most frequently encountered benefits which are tax and NI free if all the conditions are met.
Other forms of benefit may be tax-free when working abroad or in certain specialist occupations.
|Benefit provided||Principle conditions applying per employee|
|Mobile phone||1 phone, employer must retain ownership contract with telecoms provider|
|Bicycle and safety gear||Employer must retain ownership|
|Parking||At or near workplace|
|Meals and refreshments||Made available to all employees in staff canteen|
|Eye test and spectacles or lenses||Required for working with computer screens|
|Medical treatment||Up to £500 per tax year as part of a return to work plan|
|Health screening||1 per tax year|
|Trivial benefits||Non-cash, worth up to £50 per gift, capped at £300 per year for directors of the employing company|
|Pension contributions||Within annual allowance limits|
|Relocation expenses||Up to £8,000 per move, if connected to change of job|
|Works bus||Used only or mainly to transport employees|
We can advise on whether all the conditions to make a benefit tax-free are met.
If your annual salary exceeds £10,000 you should be automatically enrolled into an occupational pension scheme if your employer has started auto-enrolment.
Your employer’s contributions into that scheme are free of tax and NI, if the total pension contributions paid in don’t exceed your pension annual allowance.
This allowance is normally set at £40,000 per year. But where you have flexi-accessed your pension fund, as permitted from age 55, the maximum you and your employer can contribute into your pension scheme is £4,000 per year.
If your total income is £150,000 or more (including pension contributions your employer has paid on your behalf) your annual allowance is tapered down to £10,000 per year.
These lower allowances mean you need to monitor how much is contributed to any pension fund held in your name.
The taxable benefit of a company car is based on the list price of the vehicle when new, multiplied by a percentage derived from its CO2 emissions rating.
The lower the CO2 emissions, the lower the percentage, which means a smaller taxable benefit. However, the list price percentage will generally increase each year, meaning you pay more tax each year on the same car.
From 2020 hybrid and electric cars will be taxed at lower levels, if the electric engine sustains a longer range. A hybrid with a range of 130 miles or more will be taxed as if it was a purely electric car.
Say you have a choice of 3 cars with a list price of £30,000:
- a petrol model has CO2 emissions of 110g/km
- a hybrid has CO2 emissions of 50g/km with an electric-powered range of 100 miles
- a 100% electric car.
The taxable benefit for each car in the next 4 years is calculated as:
|Petrol car % list price||21%||23%||26%||27%|
|Electric car % list price||9%||13%||16%||2%|
|Hybrid % of list price||9%||13%||16%||5%|
The electric car looks the most attractive, but the hybrid is a close second.
We can predict how much tax you will pay on your company car.
A small commercial vehicle, such as a van or pick-up truck, is taxed at a relatively low level compared to a company car.
There is no taxable benefit if the van is used entirely for business journeys. Travelling to and from work in a commercial vehicle is classed as a business journey, which is not the case for a company car driver.
Where the van is used for private journeys, the taxable benefit is £3,230 (for 2017/18) at any positive level of CO2 emissions. If the van has zero emissions, the taxable benefit is only £646 for 2017/18.
Employer provided childcare is completely tax-free if it is provided in a workplace nursery. Not many employers can make such a significant investment in childcare facilities, so instead they provide their employees with childcare vouchers to use to pay for registered childcare.
These vouchers are free of tax and NI when provided to employees within the following limits:
|Employer judges employee’s marginal income tax rate to be||Weekly value of childcare voucher|
Employer provided childcare vouchers won’t be available to new users from April 2018. Parents can switch to a government subsidised saving scheme for childcare from 28 April 2017, known as tax-free childcare.
A loan of up to £10,000 from your employer is tax-free, even if you pay no interest on that loan.
If the total value of the interest-free loans you have from your employer exceeds £10,000 in the year, you are taxed on the interest you have saved, calculated at the relatively low rate of 3%.
You will have to repay the loan at some point. If it is written off, the amount you don’t have to repay is taxed as if it was part of your salary.
A salary sacrifice arrangement is when you give up some of your salary in return for a benefit. Such arrangements can save you and your employees money, if the benefit provided is one which is tax or NI free.
The government is changing the rules so the tax and NI savings disappear in many salary sacrifice arrangements. The new rules will apply to new salary sacrifice arrangements entered into from 6 April 2017 onwards.
Existing salary sacrifice arrangements will be caught if they are modified or renewed after that date, such as when a different company car is provided.
All salary sacrifice arrangements involving cars, vans, fuel, accommodation and school fees will come under the new rules from 6 April 2021. Other benefits, such as car parking near work, will fall under the new salary sacrifice rules from 6 April 2018.
Some benefits won’t be affected at all, and these include pension contributions, subsidised meals and medical treatments.
Talk to us about your salary sacrifice arrangement.
When you receive a new type of taxable benefit, it can take many months before your PAYE code is amended to take account of the additional tax due. This may leave you with a large unexpected tax bill after the end of the tax year.
Many employers are now deducting the tax due on benefits through the payroll, at the time you enjoy use of the benefit in kind. This means you pay the tax due during the tax year, and don’t get a nasty surprise long after the year end.
Contact our team about benefits in kind today.