By making use of exemptions, it is possible to provide employees with part of their remuneration package free of tax and National Insurance. The employer will also save employer’s NIC. Some of the most popular tax-free benefits are listed below. Most exemptions are contingent on the associated conditions being met.
1. Pension contributions
No income tax is payable on employer contributions to an employee’s pension scheme. However, contributions by the employer do count towards the pension annual allowance for tax-relieved contributions. As a transitional measure, this is set at £80,000 for 2015/16, subject to a cap of £40,000 on contributions in the period from 9 July 2015 to 5 April 2016.
2. Mobile phones
An employer can meet the costs of one mobile phone or smart phone per employee. However, the phone contract must be between the employer and the mobile phone company. The exemption does not apply if the employer simply pays the employee’s mobile phone bill.
3. Free or subsidised meals
Meals provided to employees by the employer are free of tax as long as they are provided on the employer’s premises or on a canteen where meals are provided generally for staff. The meals must be made available to all staff. Alternatively, a meal voucher can be given to staff who are unable to eat in the canteen.
4. Childcare and childcare vouchers
For working parents, the provision of childcare or childcare vouchers can be a welcome perk. Where childcare is provided in a workplace nursery the care is tax-free without limit (although there are stringent conditions that the nursery must meet). Alternatively, the employer can meet the cost of child care at a nursery, with a childminder, or provide childcare vouchers. This is tax-free up to a maximum of £55 per week. The limit depends on when the employee joined the scheme and his or her marginal rate of tax.
5. Health screening and medical check-ups
Employers can provide employees with one health screening and one medical check-up free of tax in a tax year. Employers can also meet the cost of recommended medical treatment up to a limit of £500 per employee per tax year, which is designed to help an employee to return to work after absence due to injury or ill health. Need to know: A new system of tax-free childcare is being introduced from early 2017.
If you need more information about tax for your business, please get in touch with us at Inform.
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