Tax-free benefits for employees

There are a number of ways that employers can provide tax-free benefits in kind to employees. The provision of these benefits does not create a tax charge for the employee and is not subject to any National Insurance Contributions (NIC).

The cost of providing these benefits is an allowable deduction for the company in calculating the Corporation Tax liability. The provision of these benefits can form part of an overall remuneration strategy that rewards and incentivises staff.

Here are some benefits that can be provided tax-free:

Getting to work

There are three key ways you can help your staff with their commute.

• Free parking – whether on your premises or elsewhere you can provide free parking to your employees
• Interest free loans for annual transport tickets – annual tickets for public transport usually work out cheaper than the monthly or weekly equivalents. If you lend staff the money for an annual ticket they can pay you back each month which will save them money across the year. A taxable benefit ordinarily arises where no interest is charged on the loan. However, if the total value of the loan never exceeds £10,000 then no benefit arises on the interest free loan.
• Cycle to Work scheme – a scheme to provide bicycles and safety equipment to employees at a reduced cost. This scheme is often used with a salary sacrifice arrangement.

Mobile phones

One mobile phone can be provided per employee (this includes phones given to family members of employees) with no tax consequences. The company should take out the contract and provide the phone. Where an employee contracts for a phone personally and is reimbursed by the company a benefit in kind still arises.

Childcare

It is possible to assist your employees with childcare costs. There are two ways of assisting:

• Childcare vouchers. No new entrants will be allowed to join childcare voucher schemes after October 2018 but existing members can continue. This also gives a final opportunity to anyone that would like to join a scheme. Under the scheme, basic rate taxpayers receive vouchers up to £55 per week tax-free to pay for approved childcare providers with lower amounts for higher rate taxpayers. The scheme is often used with salary sacrifice. The voucher scheme will be replaced by the Tax-Free Childcare scheme, tax relief is obtained through scheme providers and accessed by individuals not their employers. 
• Workplace nurseries. An employer can provide free or subsidised childcare for the children of all employees. The nursery can be onsite or offsite but cannot be in a residential property. The provision of this benefit is exempt from tax and NIC.

Trivial benefits

Benefits provided to an employee that cost less than £50 may qualify as ‘trivial benefits’ if they are not cash or vouchers, are not provided as a reward and are not contractual. The trivial benefits are not subject to tax or NIC deductions but cannot form part of a salary sacrifice arrangement. The trivial benefits paid to a director are subject to an annual cap of £300.

If you would like any further details on the tax treatment of the benefits mentioned above please contact Sam Pooley or your usual Armstrong Watson contact.