Are you thinking about the next tax year, and how you can give greater benefits to your employees?
By Phil Kinzett-Evans
Here are some examples of the types of tax-free assistance the tax legislation allows, which you should bear in mind when thinking about how to maximise the package you give to your employees:
Tax-free staff rewards
There are several tax-free incentives that employers can give to their employees in the United Kingdom. Some of the most common tax-free incentives include:
- Childcare vouchers: Employers can provide employees with tax-free vouchers to help pay for childcare expenses. The vouchers can be used to pay for registered or approved childcare providers, such as nurseries, childminders, and after-school clubs.
- Cycle to work scheme: Employers can provide employees with tax-free bikes and related equipment through a salary sacrifice scheme. The scheme allows employees to purchase the equipment through deductions from their gross salary, and the savings on income tax and National Insurance contributions can be used to offset the cost of the equipment.
- Mobile phones: Employers can provide employees with tax-free mobile phones and other electronic equipment if the equipment is used primarily for business purposes.
- Health screenings: Employers can provide employees with tax-free health screenings, such as health assessments, flu vaccinations, and eye tests, if the screenings are available to all employees and are not restricted to certain groups of employees.
- Employee assistance programs: Employers can offer tax-free Employee Assistance Programs (EAPs) which offer a confidential service to employees to help with personal or work-related problems such as stress, mental health, or financial difficulties.
Trivial benefits
In the United Kingdom, trivial benefits are benefits provided to employees that have a low value and do not form part of an employee’s remuneration package. These benefits are generally exempt from income tax and National Insurance Contributions (NICs) for the employee and are also exempt from employer NICs.
For a benefit to be considered trivial, it must meet the following criteria:
- The cost of providing the benefit must not exceed £50 per employee, per tax year (2022-23)
- The benefit must not be cash or a cash voucher (a voucher which is exchangeable for cash).
- The benefit must not be a reward for performance.
- The benefit must not be provided in recognition of services as an employee and must not be in the terms of their employment.
Examples of trivial benefits include:
- A non-cash voucher (see below)
- Small gifts such as a box of chocolates or a bottle of wine
- A staff party or a lunch to celebrate a special occasion.
- A small prize in a staff competition
It is important to note that if the cost of the benefit exceeds £50 (including VAT), or if the benefit is provided in recognition of services, it will be taxable to the employee and subject to employer NICs. Also, the cost of providing the benefit should be considered and if the cost of the benefit is more than £50, it will not be considered trivial. The company can do this for employees as often as it likes, as long as the above rules are met.
There are different criteria for trivial benefits for a Director of a close company. The legislation permits a maximum of £300 in a tax year for such individuals.
Non-cash vouchers
These vouchers can be used to pay for a variety of goods and services, such as food, leisure activities, and other personal expenses.
Non-cash vouchers include physical vouchers, such as paper vouchers or electronic vouchers. They are not considered cash or cash equivalents and cannot be exchanged for cash, and therefore are not subject to income tax or National Insurance Contributions (NICs) for the employee.
For a non-cash voucher to be considered tax-free, it must meet the following criteria:
- a voucher, stamp or similar document or token;
- which is capable of being exchanged, either alone or with another such voucher, stamp or similar document or token;
- immediately or after a time;
- for money, goods, or services.
To be tax-free the voucher must meet the conditions of the trivial benefit rules above.
If you would like more details regarding any of the above then please contact your usual UHY Ross Brooke partner for more information.
