Tax-free company benefits
Today I'm going to talk about trivial benefits and Tax-free company benefits.
Firstly, your business can pay your staff, and can pay yourself if you're an employee of your company. These are nice to have, no tax to pay, saves you some money, saves everybody a bit of cash.
Secondly, sole traders and companies can be employers. However, some traders can’t be employees, but company directors can be employees, check the link to find out more.
Certainly, you qualify for tax relief whether a benefit is tax-free or subject to income tax and National insurance. Likewise, paying tax-free benefits to yourself and/or your employees is a big bonus. In other words, there is no tax or NIC to pay, and you can deduct the costs from your business profits.
- To clarify, for the company to pay you or anyone else a salary, expenses or benefits, it must be registered as an employer.
- In other words, the benefit must be paid for by you, as the employer.
Likewise, you don’t have to pay tax on a benefit for your employee if all the following apply:
- the cost is £50 or less for you to provide
- cash or cash vouchers are a definite no
- it isn’t a reward for their work or performance
- the benefit isn’t in the terms of their contract
This is known as a ‘trivial benefit’. That is to say, you don’t need to pay tax or National Insurance. In other words all perfectly legal and above board, and you don’t even need to let HM Revenue and Customs (HMRC) know.
The total annual value of trivial benefits is capped at £300 where you’re the director of a ‘close’ company.
Likewise, you think your staff have done a good job, you want to give them a voucher for the theatre, buy then a box of wine, flowers or chocolates, you can see where I'm going on this one.
Your company decides what to spend the money on. This could be
- A meal out with your employees
- A few bottles of wine as a gesture of thanks to employees
- Flowers to celebrate an employee’s birthday
A close company is a limited company that’s run by 5 or fewer shareholders.
Tax-free company benefits
You can get some company benefits tax free, including:
- meals in a staff canteen
- a mobile phone
- workplace parking
Christmas parties can also be tax free if they cost £150 or less per head and are open to all employees.
Are mobiles tax free benefits?
No tax charge arises where an employer provides an employee with a mobile phone., irrespective of the level of private use. The exemption applies to one phone per employee.
There will be a taxable benefit where the employer pays the employee's private bill for a mobile phone. Paying for top-up vouchers will also be a taxable benefit.
If other family members work for your company, they are also entitled. The phone bills are deductible in computing profits.
One per household. Contract must be in employer's name. Unlimited calls/texts but employer may set limit on use or request contribution for private calls.
Parking space tax free benefit?
If you want to provide parking spaces, so pay for that NCP, other car parks can apply, then you can do that all tax-free, employee doesn't have put the hands in their pocket. You can pay for it and you can claim the tax deduction. What's not to like?
Works' “canteen”, this can be a full fridge, a sandwich trolley, or a fully functional canteen.
Other tax-free benefits
This is not a complete list of tax -free benefits. Loans, home working, childcare vouchers, and company vans are a few to whet your tax appetite.
The cash cost, after corporation tax relief to give someone £1,000 take home pay. Benefits come out on top, tax free benefits even more.
Knowing the most tax efficient way to pay yourself is vital. If you are not 100% sure what that should be then worry no more!
Contact us to see how we can help you with your tax issues. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.