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Are you paying your employees tax efficiently?

Tim Woodgates

With P11D submissions for employees due at the beginning of July, now is a good time to take stock of the benefits you provide to your workforce and evaluate if there are more tax efficient options available.  It’s also worth reviewing whether there are more potentially appealing benefits you could be providing that could help you to attract, remunerate and retain staff. 

In this article we look at a selection of employee benefits that are exempt from tax. Whilst this list is not exhaustive, each is worth considering to see if it would be a positive step forward in the tax position of both the employee and the business itself.

Pension contributions
Often one of the most valuable benefits provided by employers, pension contributions made on behalf of their employees are tax exempt benefits.  Provided that the payments are made into a registered pension scheme, the value of amounts paid is not taxable on the employee.  Coupled with a salary sacrifice arrangement, the reduced value of “normal” pay, reduces the charge to NI for the employer too.

Mobile phones
The provision of a singular mobile phone for private use can be done without creating a tax charge on the recipient employee.  Care needs to be taken however to ensure that the contract in place is between the employer themselves and the mobile phone contract supplier.  A reimbursement to the employee for their personal phone contract does not qualify and would create a taxable benefit.

An employer can assist employees with the costs of childcare provided they are made in accordance with a registered scheme.  The value of the exempt amount is dependent on the tax position of each individual employee and ranges from £55 per week for basic rate tax paying employees to £25 per week for additional rate tax paying employees.  Additional amounts can be paid to help with childcare costs but the excess amounts will become chargeable on the employee.

Workplace parking
This benefit not only covers spaces used at your work premises, but also any payments made in respect of public car parking facilities close to work.  This may be an attractive option for those employers based in busy town or city centres where availability of free parking is scarce and can be quite costly to employees who have to bear this expense to come to work.

Christmas parties, summer BBQs and similar
Provided the total cost per head does not exceed £150, providing annual functions for the enjoyment of staff will not be taxable.  The function would need to be open to all employees however to qualify as exempt.  Should the cost per head exceed the £150 limit, the total amount attributable to that employee is taxable and not just the excess.  Multiple events provided throughout the tax year will still be exempt provided that the cumulative cost does not exceed the £150 threshold.

Work-related training
This may be seen as an attractive perk for those employees at the start of their careers. By helping to  develop their skills and attain qualifications, there is not only tax efficiency advantage but it may also serve to improve the productivity and profitability of the business in the longer-term.

Trivial benefits
Provided that the value of the benefit is below £50 and is not in cash or voucher form, then this benefit would not be taxable upon the employee.  This is to cover provision of minor benefits such as tea and coffee and also small gifts that may be made throughout the course of year - for birthdays, marriages, etc.  The provision cannot be in any way contractual or in recognition of the services provided by the employee i.e. not provided for hitting sales targets, etc.

There are many ways in which staff can be remunerated that result in improvements to the tax position of both the employee and the employer.  With tax on company cars especially becoming ever more punitive, alternative means of remuneration should be considered.  In certain circumstances, when combined with a salary sacrifice arrangement, on top of the tax and NI savings for the employee, there can be significant NI savings for employers too. 

If you would like advice on any aspect of employee remuneration or tax planning, please contact your local Moore office.