QUESTION: My small business has got bigger over the years and I am keen to reward my loyal workforce with any tax free benefits that are available. Can you tell me what employer benefits are taxable and which are not?
ANSWER: Today the remuneration of many directors and employees comprises a package of salary and benefits.
Essentially two tests must be applied in determining the tax implications of any benefit - firstly, is the benefit taxable? And if so, what is its taxable value?
All earnings of an office or employment are taxable. Where they are not in cash it becomes necessary to put a value on them. As a general rule unless the benefit can be converted into cash there is no taxable benefit.
Where it is convertible into cash the taxable amount is the resale value. To prevent avoidance, additional legislation charges certain other benefits to tax. The detailed rules are complex.
Employers are required to notify HMRC of benefits provided to directors and most employees by completing forms P11D annually. Penalties can apply where the forms are submitted late or are incorrect. The full amount of any benefit must be reported on this form.
In general, employees' national insurance (NIC) is not due on benefits except vouchers, stocks and shares, the discharge of an employee’s personal liability and benefits provided by way of ‘readily convertible’ assets.
Most benefits are subject to Class 1A NIC payable by the employer. This amounts to 13.8 per cent of the taxable value of the benefit.
Certain benefits are not taxable. The most important ones are:
• Retirement benefits which are paid by an employer into a registered pension scheme;
• Meals provided in a staff canteen;
• Drinks and light refreshments at work;
• Parking provided at or near an employee’s place of work;
• Workplace nursery places provided for the children of employees;
• Certain other employer-supported childcare up to £55 per week. Any formal registered childcare or approved home childcare contracted for by the employer such as a local nursery, out-of-school club or childminder may be covered by this exemption;
• In-house sports facilities;
• Payments for additional household costs incurred by an employee who works at home;
• Removal and relocation expenses up to a maximum of £8,000 per move;
• The provision of a mobile phone or vouchers to make available a mobile phone (limited to one phone per employee only);
• Annual social functions for employees provided the total cost of all events in a tax year is less than £150 per head;
• Trivial benefits up to £50 or £300 per annum in close company situations.
The following benefits are taxable on all employees:
• Any living accommodation provided, unless job related
• Vouchers
• Credit tokens.
In addition, special rules apply to tax other benefits received by directors and all but the lowest paid employees. Common types of benefits provided include employer provided cars, private fuel, employer provided vans, cheap or interest free loans, medical insurance and mobile phones. Separate advice should be sought in relation to the tax treatment of these benefits.
:: Feargal McCormack (f.mccormack@pkffpm.com) is managing partner of PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.
