Tax Free Benefits
Tax Free Benefits – A guide for Employers
This guide is only relevant if you are a registered employer and pay your employees through PAYE. A sole director on a minimum salary would also qualify for these benefits.
You are able to provide the following tax-free benefits to your employees that are paid under PAYE (note, this doesn’t include freelancers). As usual though, there are strict conditions and criteria, not all of which are covered below. Please check with us before providing any of these benefits to staff to confirm whether you meet HMRC requirements.
An employer can provide an employee with any combination of the following benefits completely free of tax and NICs:
| Expense/Benefit | Criteria for Tax Exemption |
|---|---|
| Assets Made Available to an Employee | If the asset (e.g. laptop) is provided solely for business use and any private use is insignificant, it may be exempt from tax. |
| Bicycles and Safety Equipment | Bicycles and safety equipment provided to employees are exempt if used mainly for qualifying journeys (e.g. commuting). Employers can reclaim VAT and obtain capital allowances on the cost. |
| Business Travel Mileage for Employees’ Own Vehicles | Payments for business mileage in an employee's own vehicle can be exempt up to approved mileage allowance payments (AMAP) rates. For cars this is £45p for the first 10,000 miles and 25p thereafter. |
| Clothing | Uniforms (including a visible logo) or protective clothing necessary for the job are usually exempt. Everyday clothing, even if required for work, is not. |
| Company Cars and Fuel | Generally taxable unless it's a pool car used only for business purposes and not available for private use. It must be available to use for all employees and must be left at the employer’s premises overnight, not an employee's home. This is a complex area so please ask if you would like to claim this. |
| Counselling for Employees | Certain welfare counselling services (excluding tax, legal or financial advice) provided to employees may be exempt. |
| Entertainment | Annual events are exempt providing the total spend per head over a tax year (not an accounting year) ie less than £150 inc VAT. If you go over this amount by even 1p the whole amount becomes taxable. |
| Homeworking | Payments to employees working from home can be exempt if they cover additional household expenses incurred due to work. Alternatively a flat rate of £6 per week or £26 per month can be paid. |
| Incidental Overnight Expenses | Employers can pay up to a certain limit per night tax-free to cover incidental expenses when employees stay away overnight for work. £5 per night in the UK or £10 per night overseas. |
| Internet | Tax-free only if the internet service is provided under a new contract in the employer's name and is supplied wholly and exclusively for the necessary performance of the employee's duties. Reimbursement of an existing private contract is taxable. |
| Loans Provided to Employees | Small loans up to £10,000 in a tax year can be exempt from tax. |
| Meals and Refreshments | Free or subsidised meals provided in a staff canteen are typically exempt if available to all employees. Refreshments may be provided on a reasonable scale during working hours. |
| Medical or Dental Treatment and Insurance | Generally taxable, but certain health screenings and check-ups paid by the employer can be exempt. |
| Mobile Phones | One mobile phone can be provided to an employee for business and private use, but the phone must be owned by the company and the invoices must be addressed to, and paid by, the company. |
| Parking Spaces | Providing parking facilities for employees at or near their workplace is generally exempt. |
| Pension Advice | An employer can give up to £500 of free advice on pensions to an employee |
| Pension Contributions | The employer can make pension contributions on the employee's behalf, within certain limits. This is a complex area so please ask if you would like further information. |
| Relocation Costs | Qualifying relocation expenses up to £8,000 can be exempt if they meet specific criteria. |
| Staff Suggestion Scheme | £25 tax-free for a suggestion and up to £5k tax-free if financial benefit is achieved by an employer. |
| Subscriptions and Professional Fees | Fees and subscriptions to approved professional bodies necessary for the employee's work are typically exempt. The body must be on 'list 3' |
| Subsistence Costs | May be reimbursed when incurred during the course of business travel. Receipts must be kept. |
| Training Payments | Costs for work-related training courses paid by the employer are usually exempt from tax. |
| Travel Costs | This is a complex area so please ask if you would like to claim this. Generally speaking, travel costs are only exempt for journeys to a temporary workplace. |
| Trivial Benefits | Non-cash benefits costing £50 or less, not provided in recognition of work done, and not part of the employee's contract, can be exempt. |
| Vouchers | Cash vouchers are taxable; non-cash vouchers may be exempt if they meet specific conditions, such as being for trivial benefits. |
| Workplace charging facilities for electric vehicles | Must be dedicated charging points at premises controlled by the employer and offered to all employees in general or at that location. |