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EMPLOYER BENEFITS - GOOD & BAD
Published on 15-05-2019Email To Friend    Print Version

Employers providing benefits to to directors and staff should consider the following items and the tax implications.  Some benefits may be better than others.  Electric cars will be substantially advantageous from 2020/21.

Click on title for detail.


The provision of benefits for directors and employees can be used as an important tool to increase morale and retention of staff.

However, whilst there may be good intentions it is important to consider whether a benefit is cost effective to the employee and also the employer.

The best benefits and expenses to offer an employee are definitely the ones which do not attract a tax or national insurance liability for either party.

These benefits include
•    A work mobile phone (so long as the contract is in the business name)
•    A tablet that is not used privately for excessive use
•    Paying the full mileage rate for business travel
•    Interest free loans up to £10,000
•    Health screening
•    Flu jabs
•    Eye test
•    Paying for a parking space near to work
•    Paying relocation expenses up to £8,000
•    Providing services to an employee, where there is no extra marginal cost to the employer
•    Late night taxis
•    Providing trivial benefits to employees

Mobile Phones

Where a work mobile phone is provided care should be taken to ensure that it is in the company's name. If it is not then the company is meeting a pecuniary liability and the cost should go through the payroll and subject to tax and national insurance. A good benefit could very quickly become a bad benefit.

Trivial benefits

There are also exemptions for trivial benefits given to an employee. A trivial benefit is one that:
•    Costs £50 or less to provide (including VAT),
•    If it is a retail store voucher, it cannot be convertible into cash, • Isn't a reward for service,
•    Isn't in the terms of the employee's contract
•    Effectively acknowledges a personal event relating to the employee,
•    Is not reimbursed.
Examples that some accountants have done/plan to do...
1.    Christmas hampers
2.    Box of fireworks for an employee
3.    Fat Face vouchers
4.    Tickets to the theatre
5.    Blonde hair highlights
6.    Hugo Boss t-shirt
7.    Tickets to sporting events
8.    A tennis lesson
9.    A signed picture
10.    Wedding anniversary champagne

Where the payment is made to a director of a dose company, being one with five or fewer shareholders, then there is a £300 cap on the trivial benefits provided in one tax year.

HMRC have provided some examples of trivial benefits.

Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240 Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill HMRC should accept that the cost per head is £48, reflecting an average amount of £24015. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.

Employer B provides each of its 100 employees with a turkey at Christmas and the total bill comes to £4,500. There are a variety of sizes. Because the employer has made a bulk order, the turkeys have not been priced up individually but would cost in the region of £40 to £60 each. Employees are able to choose which bird they have. Rather than undertake a detailed analysis of the individual benefits, HMRC should accept that the cost per head is £45, reflecting an average amount of £4,50011 00. The benefit can be covered by the exemption since the cost for each employee does not exceed the trivial benefit financial limit.

Loans to employees

An employer is able to give a loan to an employee without any tax consequences so long as the loan is below £10,000 even if no interest is payable on the loan.

However, should the loan go over £10,000 in the year then a loan benefit arises on the full amount and not just the amount above £10,000.
.
A loan benefit can be calculated using one of two methods; the strict method or the average method which is then multiplied by the official rate of interest (2.5%).

Example

John

A Limited gives John a loan of £10,000 at the beginning of the tax year. He does not make any repayments of the loan during the year and the amount of the loan is still £10,000 at the end of the year. As the loan has never increased above £10,000 there is no benefit in kind.

Bob

A Limited also gives Bob a loan of £10,000 at the beginning of the year. He repays £5,000 after 3 months. Six months into the tax year Bob needs to borrow £6,000 and he does not repay any of this loan before the end of the tax year. At the end of the tax year the loan balance is £11,000.

Bob's benefit would therefore be calculated for six months of the year on the amount of £11,000.

His benefit would be £11,000 x2.5% x 6/12 = £137.50.

Company Cars

From 6 April 2020, the tax and NIC savings for electric company cars will have the potential to be significant, with the benefit in kind rates for all-electric cars reducing from 16% to 2%. For instance, the current benefit in kind charge for a £70,000 Jaguar I-pace (aft-electric car with a 298 mile range) is £11,200, and from 2020121 this will reduce to just £1,400. Assuming the employee is a higher rate tax payer, the tax charge will be just £560 per year, with employer national insurance of just £193.

This coupled with a reduction in the cost of running the car can mean that significant savings are made by both the employer and employee.

Boats, planes and helicopters

Unsurprisingly the use of a company boat plane or helicopter can be quite expensive for the employee and employer.

The benefit is calculated based on the market value of the vehicle multiplied by 20% as it is the use of a company asset, plus the running costs involved. These could include fuel costs, berthing costs and crew costs. Where the vehicle is unavailable for any reason the benefit is reduced accordingly. Examples of why it may be unavailable may be because it is being chartered to the public.

Example

David uses the company helicopter for 73 days in the year. The helicopter is valued at £300,000 and the cost of running the helicopter fur David was £20,000 being the cost of the pilot and fuel for the 73 days that it is used.

The benefit in kind would be:
£300,000 x 20% * 73/365 = £12,000 plus the running costs of £20,000 gives a total benefit of £32,000.

"Not significant"

ITEPA 2003, s316 gives an exemption from the benefit in kind income tax charging provisions if the use of an asset is not "significant" (see reference to the use of the tablet above).

See HMRC's new guidance (in the Employment Income Manual at E1M21613).

Late night taxis

There are certaln late woding conditions, which must be satisfied by the employee.
1) The employee is reqt*ed to work er than usual and until at least 9pm
2) This OCQIS irregularly
3) By the time the employee ceases work, either:
•    • public transport has ceased, or
•    • it would not be reasonable to expect the employee to use public transport.
4) The number of journeys in the tax year must be not more than 60.
 




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