Employees with Benefits

Should you motivate your staff with perks?

Yes! But make sure you understand the tax implications involved, for you and them.

Offering perks to your staff is a great way to attract good people to your business, and encourage them to stay. Research by Capita found that 69% of people would be encouraged to take a job at a company that offered great benefits, and 68% of people would be less likely to leave.

But rewarding your team can come at a cost. The most attractive benefits are often taxable, meaning that your employees will have to pay towards them, and that you (as an employer) will incur some higher National Insurance costs.

Here’s our easy guide to the most popular taxable and non-taxable benefits, so you can choose the best way to reward your own team.

Company Car

Taxable

Giving your staff use of a company car is a great incentive, and is a savvy investment if your employees regularly travel for work and need reliable (and enjoyable!) transport. Company cars are also a very popular benefit, enjoyed by almost a million UK workers in 2014/15.

Company cars are taxed according to their list price. But you can reduce the amount of tax by choosing an environmentally friendly model, as cars with higher emissions incur higher taxes. The charge is capped at 37% of the list price and, as an employer, you also pay class 1A NICs on the amount charged to tax.

To enjoy a low-cost company car, the trick is to choose a cheaper, lower emission model and there are various incentives for picking an environmentally friendly option.

Incidentally, you can offer your Employees parking at the workplace, or very nearby, as a non-taxable perk.

Private Health Insurance

Taxable

Private health insurance is the most popular employee benefit in the UK. It’s especially welcomed to staff members who are over 30, and when the policy extends to cover their immediate family too.

As an employer, you will cover the cost of providing the private health insurance to your workforce and you must pay class 1A (employer-only) NICs at 13.8% on the taxable value.

If you are providing a group policy, as is commonplace, the costs should be split between the number of employees, who will have no NICs to pay.

Childcare Vouchers

Taxable

Traditional Childcare Vouchers are taxable, and offered only to employees. They offer parents who joined the scheme after 2011 an average saving of up to £933 a year. However, the Government is about to close the Voucher Scheme to new applicants in April 2018 as it has brought in a Tax Free Childcare Scheme to replace it (see below).

If you offer your employees Childcare Vouchers, you’ll still be liable for tax and National Insurance Contributions after April 2018.

Tax-Free Childcare

Non-Taxable

From April 2018, the only Childcare Scheme open to new applicants will be the Tax-Free Childcare Scheme, which HMRC launched in April 2017 and was fully rolled out in February 2018.

The new scheme is far more inclusive, as it is open to employed people AND the self-employed. It is a simple top-up scheme; for every 80p paid by the parent, the government will top-up 20p, to a maximum top-up of £2,000 a year per child.

There are some eligibility criteria: the scheme is not open to people claiming certain benefits (including some Tax Credits), or to families whose taxable income exceeds £100,000.

You can find out more about Tax-Free Childcare here.

Trivial Benefits

Non-Taxable

If you’d like an easy treat to give your employees, without also giving them any tax to pay, consider giving them a “trivial benefit”. This is any gift that is worth £50 or less, isn’t a voucher or cash-equivalent, and isn’t a reward for services.

Usually there are no limits as to how many trivial benefits you can provide to employees, although for directors or family members who are members of staff a £300 annual limit applies.

Parties!

Non-taxable up to £150 per employee

A fun way to reward and motivate your staff is to provide staff parties or social events. HMRC treats these as tax-free up to an annual cost of £150 per head.

For example: if you hold a summer barbecue that costs £50 per employee and a Christmas party costing £60 per employee (£110 in total) both events will be free from tax.

But if the summer barbecue costs £50 per worker and the Christmas party costs £120 per worker (£170 in total), the relief will only apply to one of the events while the other will be liable for tax.

Mobile Phones

Non-taxable

Each employee can receive one tax-free mobile phone.

Bicycle

Non-taxable

As long as you (the employer) retain ownership of the bike, you can allow your staff to use them as a tax-free perk.

Food

Non-taxable

Treat your employees to subsidised or free eats in your work canteen, and it’s tax free! (If you’re going to be especially generous here, though, we’d really suggest you also take out the bicycles…)

Health Screening & Equipment

Non-Taxable

Each employee is entitled to one health screen every year, tax-free. You can also give your staff tax-free eye tests, glasses and lenses if they work using computer screens.

If you need any help working out the best way to reward your employees, and the tax implications, talk to us here at PKB Accountants.