Employee Benefits

There is a benefit in kind (BiK) trivial exemption that applies to small non-cash benefits like a bottle of wine, or a bouquet of flowers given occasionally to employees or any other BiK classed as 'trivial' that falls within the exemption. By taking advantage of the exemption employers can simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees.

The trivial benefit rules provide a great opportunity to give small rewards and incentives to employees. The main caveat being that the gifts are not provided as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included on PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1A National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

• is not cash or a cash-voucher; and
• costs £50 or less; and
• is not provided as part of a salary sacrifice or other contractual arrangement; and
• is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

The rules also allow directors or other office-holders of close companies and their families to benefit from an annual cap of £300. The £50 limit remains for each gift but could allow for up to £300 of non-cash benefits to be withdrawn per person per year. The £300 cap does not apply to employees. If the £50 limit is exceeded for any gift, the value of the benefit will be taxable.

When an employer incurs costs for the provision of mobile phones to employees it is important to understand the correct tax treatment of these expenses. This includes costs for phones provided to employees and reimbursement of employee’s own phone costs.

As a general rule, the provision of one mobile phone to a director or employee for private use is exempt from tax and NIC reporting requirements. The exemption covers the phone itself, any line rental and the cost of private calls paid for by the employer on that phone. The phone contract must be between the employer and the supplier

If the telephone expenses are not exempt, then they must be reported to HMRC, and employers may have to deduct and pay tax and National Insurance.

Various mobile phone expenses are covered by exemptions. For example, if an employee arranges the phone but the employer pays the supplier then you must:

• report the cost on form P11D
• pay Class 1 National Insurance through payroll

HMRC also make it clear that there remain devices that have telephone functionality which do not qualify as mobile phones. The tax exemption applies to devices primarily designed for voice communication. For example, the rules do not apply to tablets, PDAs and other similar devices.

A PAYE Settlement Agreement (PSA) allows employers to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for their employees.

The expenses or benefits included in a PSA must belong to one of the following categories;

• minor – e.g., a small birthday present
• irregular – e.g., one-off relocation expenses over £8,000 (these are tax-free below £8,000)
• impracticable (difficult to work out the value of or divide up between individual employees) – e.g., shared cars or taxi journeys.

Employers that are required to notify HMRC of the value of items included in a PAYE settlement agreement (PSA) must do so using form PSA1. The deadline for applying for a PSA for 2021-22 is 5 July 2022.

A PSA agreement will continue until either the employer or HMRC cancels the agreement or if changes are required. Employers do not need to renew the PSA each tax year.

The deadline for an electronic payment for a PSA for the year ended 5 April 2022 – to clear into HMRC’s bank account – is 22 October 2022. Employers that pay by cheque must ensure that the payment reaches HMRC’s Accounts Office by 19 October 2022.  There may be interest and / or a late payment penalty due where the payment is made late.

The Cycle to Work scheme was introduced over 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly mode of transport.

The scheme allows employers to provide bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme must be offered to all employees and the bike must be used mainly for qualifying journeys i.e., between home and work. However, pleasure use of the bike is also allowed. Where the scheme conditions are satisfied employees can benefit from a significant tax and National Insurance Contributions (NICs) reduction. In addition, there is no employer liability to NICs.

The cycle to work benefits only relate to the loan period, however, it is commonplace for an employer or a third-party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Employers of all sizes including those in the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme can also be used for electronic bikes known as e-bikes.

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are a number of scenarios where beneficial loans are exempt and employers might not have to report anything to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

The list also includes loans provided:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
• to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out
• under identical terms and conditions to the general public as well (this mostly applies to commercial lenders)
• that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief
• using a director’s loan account as long as it’s not overdrawn at any time during the tax year.

HMRC’s official interest rate is currently 2%.

The car fuel benefit rules only apply to company cars that attract a car benefit tax charge. This means the rules do not apply to fuel provided for use in an employee’s own car.

However, employers can pay up to 45p per mile for company related trips in an employee’s own car. If these journeys clock up more than 10,000 miles in any tax year, the rate per mile drops to 25p. As long as the above rates are applied any mileage expenses paid will be tax-free. If rates paid are higher, any excess will be taxed as a benefit. Conversely, if an employer pays less than the approved rates the employee can claim the difference against their tax bill.

Where employees are provided with fuel for their own private use by their employers in a company car, the car fuel benefit charge is applicable. The fuel benefit charge is determined by reference to the CO2 rating of the car, applied to a fixed amount.

The fuel benefit is not applicable when the employee pays for all their private fuel use. This is known as ‘making good’. Private fuel includes the fuel used commuting to and from work. Employees should keep a log of private mileage and can then use the published advisory fuel rates to repay the cost of fuel used for private travel back to their employer. For the 2021-22 tax year, the employer must be reimbursed for private fuel use by 6 July 2022.