Tax efficient employment rewards – the next five!

18 December 2015

In yesterday’s blog we revealed five ways to reward your workforce in a tax efficient today.  In today’s blog we reveal our final five tips.

Please bear in mind however that the circumstances of the company and individuals concerned should be established before putting anything you read here into practice. Get in touch with me or your normal UHY contact should you need further advice.

6. Childcare vouchers

For those that qualify, childcare vouchers are tax free, to certain limits, provided the vouchers are open to the employer’s employees generally, or to those at a specific location.

Currently any employees joining a childcare scheme will be provided tax free childcare vouchers based upon their ‘relevant earnings’ on the joining date. Childcare vouchers can be received tax free by employees up to:

  • £55 per week for basic rate taxpayers
  • £28 per week for higher rate taxpayers
  • £25 per week for additional rate taxpayers

Any amounts paid in excess of the above will be a taxable benefit on the employee.

This regime will be subject to an overhaul in 2017.

7. Education and Professional Development

Provided the education is necessary for the employee’s job, businesses can pay for any education or training needed without resulting in a taxable benefit on the employee. These courses include full-time education or sandwich courses at a university, and day release or block release training or retraining.

HMRC have a published list of professional subscriptions which can be paid on behalf of the employee. Provided the subscription is incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’ then this will not result in a benefit in kind on the employee. Furthermore, payments of subscription fees are allowable deductions for the employer.

8. Suggestion Schemes

Although it’s somewhat tricky to design a scheme that meets HMRC’s requirements this is a nice way to get the workforce more engaged in the strategy and operations of the business. Financial rewards may be given to employees for suggestions relating to an improvement in efficiency or effectiveness, which the employer has decided to adopt and which the employer reasonably expects will result in a financial benefit.

The suggested maximum award is the greater of the following:

a) Half the financial benefit that the employer reasonably expects will result from the adoption of the suggestion in the first year after its adoption; or

b) One tenth of the financial benefit that the employer reasonably expects to result from its adoption in the first five years after its adoption.

In any event, this is subject to a tax free £5,000 exemption ceiling. Any awards in excess of this will result in a NIC liability.

9. Mobile Phones

An exemption exists where an employee can be provided with a mobile phone for private use without triggering a tax charge. This exemption covers the cost of the mobile phone, the line rental and any calls. This extends to only one mobile phone per employee and does come with certain stipulations:

  • No costs are being reimbursed to the employee
  • The contract has been made between the employer and the phone company
  • The employee does not have the right to give up the phone and receive salary

It is now been accepted by HMRC that smartphones (i.e. iPhone, Android, Blackberry) qualify for this exemption.

10. The Best of the Rest

  • Parking provided ‘at or near’ the employee’s normal place of work is exempt from tax and NICs. This applies to parking for cars, bicycles and motorcycles, regardless of whether paid in advance or reimbursed at a later date.
  •  Employers can offer staff discounts to employees without resulting in a taxable benefit provided the discount does not mean an employee is paying less than cost.
  •  A maximum of £150 per head can be spent each tax year on running staff entertainment events provided they are recurrent annual events and open to all employees or to all those working at a particular location. There is nothing stopping an employer spreading this limit over a variety of different events throughout the year.
  • For any employees who are required to use a visual display unit (VDU) as part of their work a tax free benefit can be offered on the cost of the eyesight test. If glasses are needed only for the purpose of VDU use then the company can also cover the cost of any glasses or contact lenses as a tax free benefit. If glasses are needed for general use but include a specific prescription for work on a VDU, a proportion of the cost will be a tax free benefit.
  • Relocating employees? The costs of buying or selling a home and moving costs up to £8,000 are exempt from a taxable benefit provided:
    • a new employee is moving area to start a job with you;
    • an existing employee is changing their place of work within your organisation;
    • costs are paid before the end of the tax year after the one in which they moved;
    • the new home is reasonably close to the workplace and their old home is not.
  • For employees working away from home incidental expenses can be reimbursed tax free up to £5 per night when working in the UK and £10 per night when working abroad.
  • Some benefits, known as ‘trivial benefits’, can be provided to the employee tax free. These include the provision of tea and coffee, small gifts (such as flower arrangements) and seasonal gifts (such as turkeys). The exemption applies as long as the value of the individual benefit does not exceed £50 and that no more than £300 worth of trivial benefits are received during a tax year.
  • For employees who have the option of working from home, £4 per week can be paid tax free for any additional household costs, and any employee who is provided a company computer for use at home can use this for personal purposes, tax free, provided the private usage is not ‘significant’.
  • Non-cash long service awards are exempt benefits from tax and NIC provided the following apply:
    • Length of service is at least 20 years
    • The award is worth less than £50 per year of service
    • A long-service award has not been given in the last 10 years
  • Employers can make loans to employees of up to £10,000 interest free and no benefit-in-kind tax charge will arise. Care should be taken, however, where the loan recipient is a director or shareholder in the employing company, as other tax charges may apply.

If you require any advice on the tips highlighted in this post or in yesterday’s post, and before putting any measures in place, please contact me or your normal UHY contact.