Tax-free benefits for you and your employees
Certainly paying tax-free benefits to yourself and/or your employees is a great situation. Most importantly there is no tax or NIC to pay. In addition, your company can deduct the costs from business profits.
Above all the benefit must be paid for. In other words, don’t provide the funds with which to buy the benefit.
Register your company as an employer
Firstly, your company must be registered as an employer. Certainly this will be necessary where your company pays you, or anyone else a salary, expenses or benefits,
Mobiles as a tax free benefit
There will be no tax charge where an employer provides an employee with a mobile phone. This will be true even if there is private use of the phone. However, the exemption applies to one phone per employee.
No taxable benefit will arise where the employer pays the employee’s private bill for a mobile phone. Paying for top-up vouchers will also be a taxable benefit.
In addition, if other family members work for your company, they are also entitled. Above all the phone bills are deductible in computing profits.
Trivial benefits
There is no tax to pay if all the following apply:
• The cost is £50 or less to provide
• You are not providing cash or a cash voucher
Above all the total annual value of trivial benefits is capped at £300 where you’re the director of a ‘close’ company.
More importantly you can decide what to spend the money on. For example
• Meal out with your employees
• A few bottles of wine as a gesture of thanks to employees
• Flowers to celebrate an employee’s birthday
Pensions
These are a tax-efficient form of savings since nearly everyone is entitled to receive tax relief. The maximum amount on which a non-taxpayer can currently receive basic rate tax relief is £3,600.
Other tax-free benefits
For instance a company should consider these tax free benefits :
- Bicycles or bicycle safety equipment for travel to work
- Christmas and other parties, dinners, etc. Make sure the total cost for each person attending does not exceed £150 a year
- One health screening and medical check-up per employee, per year
- The first £500 worth of pensions advice provided to an employee (including former and prospective employees) in a tax year
Medical treatments
Recommended by employer-arranged occupational health services. The exemption is subject to an annual cap of £500 per employee
Likewise, health screening assessment and one annual medical check up
Travel and Subsistence
- Breakfast for early starters if available to all staff
- Lunch and refreshments while at work
- Travelling expenses to temporary workplaces
- Subsistence costs when travelling on business
- Round sum overnight allowances
- Free or subsidised meals , where provided on your business premises. The meals must be provided on a reasonable scale. All employees must be entitled to get free or subsidised meals;
Vehicles and travel
- A pool car
- Where a Van is used for commuting in and out of work, or where private use is insignificant
- Parking at your work location, or nearby
- Interest free loans up to £10,000, use the loan for whatever you want
- Relocation costs up to £8,000
- Home office working flat rate £4 per week
- Workplace charging facilities for electric vehicles
Other benefits
- Pensions advice to value of £500
- Recreational benefits
- Childcare vouchers, or a workplace nursery
- Training and course fees
- £4 per week for homeworking
- Staff Suggestion Schemes: £25 to £5,000
- Legal fees: employees no longer pay tax on legal support from their employer
- Life assurance policy premiums which provide employees with death benefits
Above all, tax free benefits generate significant tax savings for all concerned. In addition we contrast below the most tax efficient way to pay someone. To clarify, the cash cost is shown, after corporation tax relief to give someone £1,000 take home pay. Most noteworthy is that benefits come out on top, tax free benefits even more.
Company Cash Costs for Providing £1,000 take home pay: 2024-25
| Marginal Rate: Basic | Marginal Rate: Higher | Marginal Rate: Additional | |
|---|---|---|---|
| Annual | < £50,270 | £50,270 + | £125,140 + |
| Take Home Pay £1,000 | Take Home Pay £1,000 | Take Home Pay £1,000 | |
| Salary | £1,389 | £1,818 | £1,961 |
| Dividends | £1,250 | £1,250 | £1,250 |
| Taxable Benefits | £854 | £854 | £854 |
In conclusion, it’s vital that you know the most tax efficient way to pay yourself.
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