Top 10 Tax Efficient Employee Incentives & Benefits in the UK

Author

Robert Wilson

As a Tax Manager, Robert works across all levels of the business to aid and abet the delivery of tax advice across ETC’s broad and varied client base. He has a particular interest in the tax affairs of owner managed businesses and the personal affairs of the company shareholders, including profit extraction, exit planning and family wealth preservation.

Ten Tax Efficient Benefits, Bonuses & Incentives to Reward UK Employees

As the end of the calendar year is approaching, it is normally the time that employers and employees are beginning to sit down and plan their end of year reviews, and also look to attract new talent.

Good employees are hard to come by and retain, therefore, offering them incentives for their services is often a good way to retain and attract staff away from competitors. But, nothing is free in this world, some of the typical benefits you see attract a large tax bill for both employee and employer.

As such, described below are some of the ‘cheaper’ tax efficient perks available here in the UK.

Top 10 Tax Efficient Employee Benefits

1. Mobile Phone – If an employer provides an employee with a mobile phone, this is a tax-exempt benefit even if the employer is paying for the employee’s personal telephone calls in some cases.

HMRC recognises that there will inevitably be some personal calls made by the employee, but they have chosen not to treat this as a taxable benefit. The exemption only covers the provision of one mobile telephone for an employee.

2. Parking – The provision of “workplace parking” is a tax-exempt benefit. This covers not just a space in the employer’s car park but would also extend to the costs of a season ticket at a public car park close to work. Similarly, the provision of motorcycle or bicycle spaces at or near work is a tax-exempt benefit.

3. ‘Works do’ – The provision by the employer of a Christmas party or other similar annual function for the employees, will not give rise to a taxable benefit for the employees as long as the costs of the party did not exceed £150 per head.

This will mean that for most office parties, there will be no corresponding tax charge on the employees. If the employer provides two or more functions, all the functions will be exempt provided the total cost per head does not exceed the £150 limit.

4. Little gifts – A ‘small’ gift to an employee will not cause any tax implications so long as the value does not exceed £50. If the cost exceeds £50 the full amount will be taxable.

Examples of when the exemption would apply include sending flowers/a bottle of wine to an employee on an event such as a birthday or birth of a child.

There is no limit on the number of trivial benefits that can be provided in the tax year, except where the individual is a director. In this case, depending on the size of the company, the total value of small gifts cannot exceed an annual cap of £300.

5. Staff awards – Awards by an employer to an employee from a staff suggestion scheme (such as ‘employee who contributes the most’) are generally tax exempt provided that the award does not exceed £5,000.

6. Cycle to work Scheme – The Cycle to Work scheme was introduced in 1999 – the aim being to encourage people to make healthier and more environmentally friendly lifestyle choices. In essence, the employer buys a bike for the employee to ride to work, the employee ‘hires’ it through salary sacrifice (which means the employee saves by not paying tax and National Insurance on the monthly fees) and at the end of the ‘hire’ period the employee buys the bike from the employer. In other words, the employee’s salary sacrifice is made from their gross salary, not their net salary.

7. Long service award – an employer may provide a tax-exempt award of up to £50 per year of service, as long as the employee had at least 20 years’ service with the same employer. This exempts gifts such as gold watches etc to a long serving employee on retirement.

8. Working from home – Employers can make tax-exempt payments to an employee in respect of reasonable additional costs incurred for working at home. This must be under a homeworking arrangement where the employee regularly works at home. There is no limit to such payments stated in statute. However, HMRC has stated that no records need to be kept by employers for payments up to £4 per week or £208 per year.

If payments exceed these limits, the employer should keep records to provide evidence that the higher payments were wholly in respect of additional household expenses incurred by the employee in working from home.

9. Sports and recreation – Workplace sports or recreational facilities for use by staff generally are a tax-exempt benefit. Fitting out the lunchtime breakout games room might therefore create a happy workforce.

10. Pension – One of the most valuable benefits that employees receive from their employer’s is an employer’s contribution to the employee’s pension scheme.

This is exempt from tax as long as the pension scheme is a registered scheme.

Therefore, if an employer pays into either the employee’s occupational pension scheme or into the employee’s personal pension scheme, no taxable benefit will arise. The level of employer’s contributions is irrelevant.

The above is by no means an exhaustive list, many other options are out there including employee share schemes to reward and attract employees which carry tax advantages/disadvantages and associated professional costs…

Professional advice is always there so as to ensure that any remuneration/rewards package is structured so as to maximise the benefit for both employee and employer.

Read more about business tax below.

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