Last week, KPMG, one of our main competitors (!!), decided to take back mobile phones previously issued to a large number of administrative staff (as part of a cost-cutting drive they have going on there at the moment). Those mobiles were not only very useful to their disappointed employees, but they were free of taxation.
This got Tax Tuesday thinking about tax efficient benefits, generally.
We think our clients might value having a list of the things they can do tax efficiently for their employees (and for themselves). We have added a few tips and comments to some of the more realistic items on the menu.
The full list of tax efficient benefits is long and there are items which might be of relatively infrequent or even doubtful use. There are, however, a good number which do warrant some thought and attention.
In our long-term experience of business, we have found that even small and sundry benefits can make a real difference to employee contentment and loyalty; and where those things are free of Income Tax and National Insurance, the cost of making that difference becomes much more affordable!
Consider these items:
- Mobile phones (handset, contract, all calls)
- Phones can be a powerful benefit-in-kind (BIK) because interest and take-up can be expected to be high, in principle. Yes, employers need to get the choice of hardware “right” and yes, limits and boundaries on usage are usually necessary. This item is, of course, most attractive and convenient where business usage is likely to be essential.
- Next week’s Tax Tuesday expects to outline the considerable taxation advantages associated with approved pension arrangements – look out for that! Among other things, the blog will highlight how contributions made by the employer can be superior to those made personally: “Salary sacrifice” remains available for pension contributions, enabling valuable NI savings to be achieved on the sacrificed amounts, for both employee and employer alike.
- Employers can give any number of benefits to employees, made up of individual items to a value not exceeding £50 each, as long as these are not explicit rewards for work done, and not exchangeable for cash (so, vouchers for a retail outlet which cannot be encashed are typical examples). NB while there are restrictions upon director/shareholders, even these individuals can have up to six such items in a tax year, worth £300 of tax-free value – and it would surely be daft not to take those tax giveaways.
- It might surprise readers to see living accommodation in the list of potentially tax efficient benefits but it can sometimes be so. Just by way of example, residential accommodation provided by the employer, with a cost of up to £75,000 (bear with us on this!) potentially gives rise to a taxable benefit-in-kind amounting only to the “gross rateable value” (GRV) which would have applied to that property at the time of rating assessments back in 1973. That GRV is likely to be “peanuts”, relatively-speaking, in today’s money. And before anyone scoffs at the cost threshold or reminds us that a residence in the company won’t qualify for private residence relief, it might be worth exploring a holiday unit, like a very nice log cabin somewhere………………
- Up to £150 cost per employee per annum is tax-free, but take care not to exceed the allowance or the full cost of the event(s) which give rise to that excess become taxable.
- Where childcare is a regular feature of the needs of an employer’s personnel, the options of establishing own nursery at the workplace, paying a childcare provider up to specified limits or giving childcare vouchers to interested staff can be effective. At the current time sums of up to £55 per week (depending upon the marginal tax rate of the employee) are free of taxation.
- (I) While the taxable benefit-in-kind on “low emission” cars is currently calculated at 16% of list price (or 20% for diesels), fiscal incentives return from April 2020, when company-provided electric and hybrid cars, achieving lower than 50 g/km of CO2, will start at taxable benefits of just 2% of list price (NB. that level, which applies to wholly electric cars and hybrids where the electric power has a range of more than 130 miles, does increase for hybrids with lower electric-only powered mileage ranges).
(II)“Vans” continue to be tax efficient, especially given that the definition of a van has not been revised to exclude the many high performance “double cab pick-ups” on the market. Annual benefit in kind changes amount to only £3,430 or even lower, at £2,068, for low emission versions, currently. Electric vans with zero emissions, used only for business and ordinary commuting, involve a zero taxable benefit.
(III) Bicycles and associated safety equipment can be loaned to employees free of taxation as long as the gear will be used at least in part for home to work journeys.
(IV) As far as petrol and diesel (ie “fuel”) is concerned, allowances for use of an employee’s own car on employer business can be set at a level of up to 45p per mile (for up to the first 10,000 business miles per annum) before any personal taxation arises. In some circumstances this can provide scope to get useful value to employees tax efficiently.
(V) Electricity, meanwhile, is not treated as a “fuel” for taxation purposes. The costs of recharging company cars are free of taxation and the costs of recharging employees’ own cars is also tax free as long as that takes place at or near their place of work (and is available to employees, generally).
Employees using company-provided electric vehicles for employer business can claim 4p per mile tax free allowances. Employees using their own electric vehicles for employer business can claim mileage allowances as though their cars were “fuel” powered engines – see (IV) above.
(VI) Parking provided to employees at the workplace is tax-free, too.
- Loans to an employee which do not cumulatively exceed £10,000 in the tax year do not involve any taxable benefit for the recipient. Aside from the potential merits of assisting an employee with their cashflow, this might also be used to help them with management of their marginal tax exposures in some circumstances (and help avoid tax at otherwise temporary higher rates).
- A highly desirable benefit, for all parties and for obvious reasons, can be the provision of screening assessments and medical check-ups. One of each in a tax year is free of taxation on the employee.
There are also exemptions from tax on medical treatment abroad where an employee falls sick while away on business, and for treatment which helps an employee return to work (up to a maximum £500).
Counselling after termination of employment is exempt, as is welfare counselling provided generally to all employees on similar terms. Welfare counselling includes debt counselling but otherwise does not include advice on financial and taxation matters (sadly).
- Meals provided on the employer’s business or in a canteen where meals are provided for employees generally are exempt as long as these are reasonable in nature.
We are a tad embarrassed to mention meal vouchers, which, at a very long-term 15p a working day, remain tax-free. For a basic rate taxpayer these save 3p Income Tax which we are not convinced is likely to make that difference………………
- Let’s list some other items which might arise from time to time:
- – retraining costs
– removal expenses up to £8,000 – please refer to us when needed
– personal gifts unconnected to the job
– work and safety clothing
– contributions to household costs for home working: £4 per week without evidence.
– incidental overnight expenses: £5 per night while away in U.K (£10 while overseas)
– long service items (for service of at least 20 years) costing up to £50 for each year
– suggestion schemes: encouragement awards (£25)
– third party gifts costing less than £250
– transport home for occasional late working
– travel from offshore oil rigs to the mainland………………!!!
There are more but we believe we have captured the main items potentially relevant to our client base.
If anyone would like to explore the detail behind these items or discuss the merits and practicalities of their usage, please do not hesitate to contact your relationship principal or Tax Partner, Chris Barrington, here.