Sarah Laing highlights some tax-efficient benefits and expenses that employees can offer their staff.
Employers often make up a total employment package by providing extra benefits on top of salary. This article looks at some of the more common tax-free perks currently available.
Making the most of mileage
Mileage is probably the most common expense incurred by employees. Where an employer reimburses business mileage in the employee’s car at less than HMRC-approved rates, the employee can claim the balance (but not the 5p per mile passenger extra) against their taxable income. The approved rates are currently:
- 45p per mile for the first 10,000 miles;
- 25p per mile for each subsequent mile;
- 24p per mile for motorcycles;
- 20p per mile for bicycles; and
- 5p per mile extra for each passenger carried on work-related journeys.
Example: Bill claims a tax repayment for business mileage
In 2013/14 Bill travelled 9,000 miles on company business and his employer reimbursed him at the rate of 40p per mile. The tax-approved mileage rate is 45p per mile, which means that Bill can claim the 5p a mile shortfall against his taxable income. This equates to £450 (9,000 x 5p).
If Bill is liable to tax at the higher 40% rate, he will be able to claim a tax repayment of £180 (£450 x 40%).
Other travel-related expenses
Free or subsidised work buses - The bus has to seat at least nine passengers. Any number of employers can join together and provide a works bus or minibus service for their joint workforces. The bus has to be used mainly for commuting or travel between workplaces, but employees and their families can use it occasionally for other trips.
Cycles and safety equipment made available for employees will not give rise to a tax or NIC charge. Employees can use cycles and safety equipment for leisure as long as the main use is for commuting.
Employers can provide taxis for employees going home after 9pm as long as no public transport exists or it would be unreasonable for the employee to use it (for example, if they had to walk a mile down an unlit street to catch a bus). This does not apply if employees have to regularly or frequently work past 9pm (no more than 60 times a year).
Other tax-exempt benefits
Other benefits that can be made tax-free include:
- the cost of meals when away from home on business;
- the cost of travel to a temporary workplace for up to 24 months;
- personal expenses when away from home on business of up to £5 per night in the UK and £10 a night abroad. This is to cover the cost of incidental living expenses such as newspapers, telephone calls home etc;
- unreceipted payments of up to £4 per week if required under the terms of an employment contract to work at home;
- the cost of two return journeys a year for a spouse/civil partner and children to a location outside the UK if the employee is required to work overseas for a continuous period of at least 60 days;
- long service awards are tax free as long as the recipient has at least 20 years with the same employer and there has been no similar gift in the past ten years. The gift can be worth as much as £50 for each year of service but cannot be in the form of cash;
- Financial/pensions advice worth up to £150 per year;
- eye checks for staff who use computer screens and any fixed amount given towards buying glasses; and
- medical treatment if incurred overseas on business.
Practical Tip:
From April 2014, employers can offer employees tax-free cheap loans of up to £10,000 per year. This is a cost-effective way of (for example) helping employees purchase season tickets for travel. Provided the full amount of the loan is repaid to the employer and total loans outstanding do not exceed £10,000 at any time, no tax or NIC will be payable. It is worthwhile for employers and employees to discuss interest-free or cheap loans, as it may be beneficial to both.
