Employment Benefits

Employment Benefits: A Guide to Taxable and Non-Taxable Benefits

For businesses in Nottingham, structuring an employee’s remuneration package effectively can offer significant tax advantages. At AHACCOUNTANTS, we provide expert advice on the rules surrounding employment benefits, helping both businesses and employees navigate the tax implications efficiently.

Key Considerations for Employment Benefits

Directors and employees often receive a combination of salary and benefits. When determining the tax implications of these benefits, two essential questions must be addressed:

1. Is the benefit taxable?
2. If taxable, what is its value?

Tax Reporting and National Insurance

Employers must notify HMRC of the benefits they provide using P11D forms. These forms must be submitted annually, and any errors or delays can result in penalties.

While most benefits are subject to Class 1A NICs, employees do not typically pay NICs on benefits except for certain types (e.g., vouchers, shares). Employers must pay 13.8% Class 1A NIC on taxable benefits.

Non-Taxable Benefits

Certain benefits are exempt from taxation, which makes them attractive when structuring remuneration. Key non-taxable benefits include:

• Contributions to a registered pension scheme
• Workplace meals in staff canteens
• Parking near the workplace
• Workplace nursery places for employees’ children
• In-house sports facilities
• Payments for homeworking expenses
• Relocation expenses up to £8,000 per move
• Provision of one mobile phone per employee
• Annual social functions where the total cost does not exceed £150 per head
• Trivial benefits valued at less than £50, up to £300 annually for directors of close companies

Trivial Benefits Exemption

A statutory exemption applies to small-value benefits, provided they meet the following criteria:

• Cost less than £50
• Not cash or a cash voucher
• Not provided under salary sacrifice or as part of a contractual agreement
• Not given in recognition of specific work

For directors of close companies, the exemption is capped at £300 annually.

Taxable Benefits

Benefits that are typically taxable for employees include:

• Living accommodation (unless job-related)
• Vouchers and credit tokens
• Employer-provided cars, with tax based on the car’s CO2 emissions (up to 37% of the car’s list price)
• Private fuel (unless the employee reimburses the employer for all private mileage)
• Employer-provided vans, with a taxable charge of £3,960 for unrestricted private use
• Medical insurance
• Interest-free loans exceeding £10,000
• Company assets for private use (taxed at 20% of the asset’s market value)
• Private home phone bills, including rental charges

Salary Sacrifice Arrangements

Salary sacrifice schemes allow employees to exchange part of their salary for benefits. However, the taxable value is now the higher of the cash amount sacrificed or the taxable value of the benefit. Exemptions apply for:

• Employer-provided pension saving
• Childcare vouchers
• Cycle to Work schemes
• Ultra-Low Emission Vehicles (ULEVs)