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Tax-free benefits for employees. By Nichola Ross Martin

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10th Nov 2006
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Philip Fisher, employee benefits partner of Chantry Vellacott DFK, spoke at AccountingWEB's recent 'Employee Benefits and Expenses' tax tutorial. We covered a range of topics and Philip drew the long straw and got the opportunity to cover what he terms as "freebies".

There are not too many "freebies" when it comes to tax, but employees will certainly appreciate the provision of any tax-free benefits that an employer can provide. Philip grouped the different benefits under some original headings, and these are the highlights:

Events
Annual parties which are available to all, up to £150 per head (not employee), to include all costs (transport and accommodation).

Business conferences should not create a taxable benefit in themselves, and likewise business-related training.

Technology
One mobile phone may be provided per employee, from 6 April 2006. Employees on existing contracts overlapping this tax will continue to be taxed under the old rules. This may mean that such an employee may receive upgrades and it is not immediately clear whether the upgrades should then be taxed under the new rules. This may be very difficult for employers to check as some upgrades go directly to the employees and the paper trail is not retained.

From 6 April 2006 computers supplied primarily for business purposes are tax free, and likewise PDAs. Old PDAs (ones purchased before 6 April are still counted as phones, and under the old rules).

Dedicated phones and modems can be supplied to employees who are required to or arrange to work from home, but watch out for broadband as contracts vary.

Do not overlook pool cars, and really generous employers can provide free parking for cyclists (!) as well as other vehicles.

Health
The provisions of glasses and eye tests for VDU users is a valuable freebie, most employees like quality glasses and these do not come cheaply. Health screening is also a valuable benefit.

Employers can also contribute directly to employees' pensions.

Staff canteens and lunches, providing these are available to all employees.

Breakfasts can be offered on cycle to work days, and bicycles can be leant without charge to those employees who are prepared to cycle to work.

Most employers would probably be embarrassed to stick to the paltry amounts that can be paid to entitle a tax exempt long-service awards. After 20 years an employer can make a gift costing no more than £50, and then again after every 10 years.

Accommodation
This can be provided if, necessary, customary or for securities reasons. Practically this means that hotel and catering staff and MPs are the main beneficiaries of this type of exempt benefit.

Loans
Employers can lend employees up to £5,000 at any time. If the balance exceeds that then the employee pays 5% interest. This is very useful for buying season tickets.

Banks and other lenders can make employee loans on same terms as public. More beneficial terms will create a tax charge.

Employer loans can be used to buy shares in close company, but care needs to be taken to ensure that the "financial assistance" rules are not breached.

Termination
Up to £30,000 may be paid on a change of job. Philip pointed out that this could include the situation where a person resigns as a director

PAYE Settlement Agreements (PSA)
As the employer pays the tax, PSAs make any benefit tax-free. PSAs are used for small, irregular benefits where it is impractical for the employer to split the benefit between employees. The added bonus is that there is no P11D reporting either. Useful for perks such as employee holidays.

Trivial benefits
There is little HMRC guidance on these benefits so one needs to take a "common sense" approach. The benefit should be welfare and not reward. It includes tea and coffee, small gifts (like flowers), and seasonal gifts, such as turkeys and wine.

Fisher said that it is essential to obtain advance clearance for trivial benefits, and these will be relative to size of organisation.

Childcare
Vouchers can be given up the value of £55 per week tax and NI free for the employee to exchange for registered and approved childcare from a third party. Employers can provide workplace nurseries tax free.
The exemption does not extend to:
Cash payments to an employee to help with their childcare costs, paying an employee's childcare bills on their behalf or the payment of school fees.

Even a one man company can offer its sole employee these benefits. There is, it seems such a thing as a "free lunch" after all!

For more information about future AccountingWEB events and reports on previous events, click here.
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Replies (6)

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By dennismiller
10th Nov 2006 13:43

Does 'employee' include a director ..
Does 'employee' include a director, even in a close company?

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By User deleted
10th Nov 2006 14:02

Yes
See s 5 ITEPA, the provisions for employees apply likewise to office holders such as directors.

Quite confusing when you consider that directors of close companies without employment contracts are not employees for the NMW provisions.

2 different provisions, 2 different rules.

Nichola Ross Martin
Editor, AccountingWEB

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By ian.hudson
10th Nov 2006 15:21

s323 ITEPA exemption
Isn't the exemption afforded by S323 ITEPA £50 per year of service for long service awards. £20 for 20 years service is definitely paltry!

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By CathyB
10th Nov 2006 15:26

Glasses
Aren't the glasses still supposed to be specifically for VDU use, as in EIM 21765?

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By Taxi
10th Nov 2006 17:09

Ian, thank you for that - as a VDU user I definitely do need bet
I have amended the article to save any confusion.

On the VDU users point, the legilsation (s 320A ITEPA 2003) is to ensure that the employer does what is requried by the Health and Safety at Work Act 1974. So this includes VDUs but also any other work equipment that may be responsible for any eye damage or strain.

Nichola Ross Martin
Editor, AccountingWEB


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By Peter Cane
10th Nov 2006 17:30

Tea & coffee
I always thought tea & coffee came within the exemption for canteens & subsidised meals under Section 317 ITEPA 2003 rather than the trivial benefits rule.

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