Your employer may provide you with some benefits and allowances without having to pay any tax or NIC. You might think that this is great news because it saves you money. However, there are rules about what you can claim. If you don’t understand how to calculate your taxable benefit, you could end up owing thousands of pounds.
If you receive a salary sacrifice arrangement, you won’t owe any tax on the amount you’re given. But you still need to keep track of what you’re receiving. And if you didn’t know, you might find yourself getting hit with a hefty bill from HMRC.
You’ll want to make sure you’ve got everything covered. Here’s what you need to know about non-taxable benefits and allowances.
1. What do I need to consider?
There are lots of things that come under the heading of ‘non-taxable benefits’. So let’s take a look at some examples…
2. How much am I allowed to claim?
The basic rule is that you can only claim £20 per week for each person you employ. But if you work part-time, you can claim £40 per week.
Annual parties or similar functions
The annual party budget limit is set at £150 per person. However, if you are planning to host more than one event, it is better to split up the cost into smaller amounts rather than spending everything on just one party.
This applies even if the events are costing more than £150 each, because the total amount spent must still remain within the annual party budget limit.
Carers board and lodging
Board and lodging refers to the cost of providing housing, board, meals and other expenses for employees while working away from home. This expense is usually paid directly to the employee by the employer.
Employees who receive subsidized board and lodging are those who do not earn enough money to cover their living costs outside of work. They often live in shared accommodation such as hostels or student halls of residence.
The amount of subsidy varies depending on the type of accommodation, location and whether it is furnished or unfurnished.
Cost of acquiring assets from staff
Employees are allowed to deduct certain costs associated with buying personal property such as clothing, shoes, and computers. However, there must be a written agreement between the employer and employee to allow the deduction. In addition, an oral agreement is not sufficient.
An example of a valid expense deduction is if an employee buys a computer for his/her use at home. If the employee uses the computer at work, he/she could claim a deduction for the cost of the computer.
Another example is if an employee purchases a pair of shoes for himself/herself. He/she could deduct the cost of the shoe if he/she wears the shoe away from work.
The IRS allows employers to reimburse employees for some expenses, including mileage, parking fees, toll charges, and telephone calls. But, the reimbursement cannot exceed $25 per month.
Shareholders are taxed differently depending on how they acquire their stake in a company. If you receive shares in lieu of salary, you pay capital gains tax on the difference between what you paid for the shares and the market value today. However, if you are granted shares during employment, the government treats you as if you had bought those shares yourself. This is known as employee shareholder status and it gives you certain benefits such as being able to claim losses against profits.
A tax saving of up to 30% can be achieved through this arrangement.
Equipment for employees with disabilities
The law states that employers cannot require employees to provide personal items such as mobile phones, laptops and tablets. But what about equipment given solely to carry out the duties of employment? This includes things like protective clothing, safety footwear, tools and equipment, uniforms, and even vehicles. These items are generally required to perform a job effectively and safely. If you give someone a vehicle purely for work purposes, it is likely to fall under the category of “equipment”. However, there are exceptions where this might not apply. For example, if you hire someone to deliver goods around town, you do not need to pay them for the delivery vehicle.
Where equipment is also used outside normal working hours, that exemption doesn’t arise. So, if you hire someone full-time to work in a factory, and he/she uses his/her laptop during lunch breaks, the employer still needs to pay him/her for the computer.
Private use of equipment must be significant’ before the exemption applies. In other words, it must take up a lot of time. For example, if someone works a 9 am-5 pm Monday to Friday shift and takes a 3 hour break each day for lunch, it is unlikely to be considered significant’.
Fees for monitoring programs for vulnerable individuals
The government has announced it will introduce legislation to provide employers with greater flexibility to manage their workers’ access to health and safety information.
This follows concerns raised by the National Audit Office about how well employers are managing their obligations under the Health and Safety at Work Act 1974.
As part of the Government response to the NAO report into workplace health and safety, the Secretary of State for Business, Energy and Industrial Strategy, Greg Clark MP, today published draft regulations to make it easier for employers to monitor their workforce.
These include introducing a duty on employers to ensure that their employees have access to health and safety training materials and information.
Employers will also be able to use a new system called ‘Monitoring Schemes’, which allows them to enter data about their workforce into one place.
Under current law, employers must keep records of their workforce and make sure that they know where each worker lives, works and goes to school. They must also take steps to protect their workers from injury or ill health.
In addition, employers must appoint someone to look out for the welfare of their workforce. This includes ensuring that they are aware of potential risks at work, such as poor working conditions and dangerous equipment.
The law allows employers to give gifts to employees. These gifts do not have to be cash or money; it could be a car, a trip to Disneyland, tickets to a sporting event, etc. However, there are some limitations to what you can give. For example, if you want to give someone a $1,000 watch, you cannot do that because it is considered taxable income. You can give a $100 gift card, however.
A goodwill gift is defined as any gift made to an employer’s employee, his/her wife, children, parents, brothers, sisters, grandparents, grandchildren, nieces, nephews, uncles, aunts, cousins, brothers-in-law, sisters-in-law, nieces-in-law, nephews-in-law, friends, neighbors, co-workers, employees, agents, subcontractors, servants or other persons living together with the employee.
In addition, the gift must be made to one of the above listed people. If the gift is made to someone else, such as a friend, neighbor or relative, it is no longer a goodwill gift.
There are certain restrictions on how much you can give. For instance, you cannot give a gift worth more than $25 per week. Also, you cannot give a total of more than $10,000 per calendar year. Finally, you cannot make a gift to yourself.
Finally, if you pay someone to perform work for you, you cannot claim a goodwill deduction for the value of the work performed.
Health examinations and doctor visits
The Ministry of Public Health recommends that people undergo a general health screening once every two years. This includes blood pressure measurements, body mass index calculations, cholesterol tests, and eye exams. If there are no specific risks found during the screening process, an annual checkup is sufficient. However, if there are specific risks found during the process, a medical checkup is recommended.
Job-related living accommodation
Living accommodation is usually provided by the employer, unless it’s required for the performance of your duties that you reside there. If you’re employed by an organization, or an associated organizations, you can claim exemption on the basis of being exempt under section 2(1)(b) of the Employment Rights Act 1996 if:
you don’t have any financial interests in the company;
the company is not for profit;
is a charitable organization;
your work involves providing services to persons who cannot afford them;
If you’re self-employed, you can claim exemptions from Council Tax if:
you don’t receive income from the company;
The company is not for profit.
Awards for long service and suggested programs
A long service award is given out to people who work for a certain amount of time. This type is usually awarded after 25 years of working at a specific company.
Suggestion schemes are ways for companies to reward their staff for good work. These types of schemes often include ideas about improving the workplace. If you meet certain criteria, companies will give you these rewards.
Long service awards are usually given after 25+ years of employment with one company.
There’s no limit on how much money you can earn from a long service award.
(a) You won’t owe income tax on a long service award worth less than £5,000
(b) You’ll only pay tax on the value of the award once it reaches £5,000
You can keep receiving long service awards even if you’re already getting paid over £50,000 per annum.
An overtime meal or allowance should not be considered unreasonable if it is paid out once every three months, and the total cost does not exceed $23 (GST / HST + PST).
The taxability of overtime meals or allowances depends on whether the employee works regularly and often. If the employee works regularly and infrequently, the meal or allowance is not taxed. However, if the employee works regularly, the meal or allowance becomes taxable because it is likely to be consumed during the workday.
Overtime meals or allowances are subject to GST/HST and PST.
Medical treatment abroad
If you travel outside the UK for medical treatment, it’s likely that you won’t be able to access free NHS care while you’re away. But there are some exceptions. If you receive treatment abroad, you might be entitled to claim back the cost of your treatment from your employer.
You can make claims for treatments received in another EU member state, Norway, Iceland, Liechtenstein, Switzerland and Turkey. You don’t need to pay anything upfront; you just need to submit receipts and invoices to your employer.
There are different ways to claim costs incurred overseas. For example, if you use a private health insurance plan, you could ask your insurer to cover your expenses. Your employer doesn’t need to know about this arrangement. Alternatively, you could take out a loan against future earnings. This is known as a repatriation loan. However, you must repay the money within three months of returning home.
The amount you can claim depends on how much you spent on your treatment. You can claim up to £1,250 per month, plus VAT, for each day you stayed abroad. This includes accommodation, food, transport, medication and other items.
Employees are required to purchase their own mobile phones. If you’re working for someone else, it’s up to you to buy the device. You’ll have to pay for the cost of the phone yourself.
There’s a tax on the money that employers spend on employees’ mobiles. This applies to companies with over 250 employees.
The tax is based on how much the employer spends on each employee’s mobile phone. For example, if an employer spends $100 per month on each employee’s mobile, there will be a tax of 30%.
Office space, equipment, or services
Section 316 of the Employment Standards Act applies to employers who pay wages to workers who live outside of their homes. These benefits include things like free meals, transportation, child care, and even subsidized rent. However, it doesn’t apply to benefits that are taxed income under the Income Tax Acts.
Employers cannot offer tax deductions or credits as incentives for employees to move into newly built housing. They must provide these benefits to people who already live there.
For example, if you build a new office building and give it to everyone who works there, you’re probably breaking the law. You’d be giving away money that belongs to the government.
If you want to encourage someone to move into a new house, you could offer them a tax deduction. If they don’t use the deduction, it goes back into the general fund.
Employers provide parking lots for many reasons. Some companies offer free parking to attract talent, while others charge for it. If you’re lucky enough to work for one of those employers, here are some tax implications you might want to know about.
Payments for the extra living expenses incurred by employees who work from home
HM Revenue & Customs (HMRC) published guidance on Friday setting out what employers need to know about paying additional household costs incurred by workers who work from home. This includes expenses such as broadband subscriptions, mobile phone contracts and childcare costs.
The government introduced legislation in April 2017 which allows employers to pay up to £2,500 per year towards additional household costs incurred at home by employees who work from home. However, there are some restrictions on how much an employer can claim. For example, it cannot make contributions towards the cost of childcare unless the employee works less than 35 hours a week.
Employers must ensure that they correctly calculate the amount they are entitled to claim under the rules. They should check whether they will need to keep evidence of the additional household costs paid by the employee or seek an agreement with the tax authority. If an employer makes a payment without getting an agreement, it could lead to penalties being imposed.
Pensions (and other benefits) upon death or retirement
Section 307(1)(a) of the Income Tax Act 1961 provides that the employer must make payments into a pension fund for the purpose of providing a pension, annuity, lump sum or gratuity to or for the benefit or on behalf of an employee or his dependant on his retirement or death, where such payments are required to be made under a written agreement entered into by the parties.
The amount payable depends upon whether it is a defined contribution scheme or a defined benefit scheme. If it is a defined contribution arrangement, the amount payable is the present value of the contributions plus the accrued benefits. If it is adefined benefit arrangement, the amount payable consists of the present value of the benefits promised to the employee.
In either case, the amount payable is calculated by reference to the age of the employee on the date of the payment and the actuarial assumptions used by the Pension Fund Administrator (the PFA). These include the expected life, interest rates, mortality table, discount factor and investment return.
There are some exceptions to section 307. For example, the amount payable does not apply to certain types of arrangements, including those involving the provision of housing accommodation, medical treatment, education, training, unemployment insurance and social security.
The amount payable is subject to taxation if the employee is liable for tax on the receipt of such benefits. However, there is no deduction allowed for the amount actually paid out.
The government says it wants pension advisers to offer advice to everyone, rather than just certain groups such as public sector workers. But what does that mean in practice? And how much do we know about the quality of advice being offered?
In 2016/17, there were nearly 8 million people aged over 50 working in the UK. By 2020, this number is expected to increase to 12 million – that’s around one in five people. So, the issue of pensions is becoming increasingly important.
But many people are unaware of the options open to them. In fact, according to research conducted by the National Association of Pension Funds (NAPF), only half of adults think they have enough information to make a decision about whether to take out a pension.
So, what exactly is a pension and why might you want one? What are the different types of pension schemes? How do I choose one? Is it worth taking up a pension scheme? And, most importantly, what sort of advice should I be getting?
To help answer some of these questions, NAPF commissioned YouGov to carry out a survey among 2,000 adults across the UK.
The findings show that while most people feel confident about making decisions about their finances, less than half say they understand the basics of pensions. Only a third of respondents could correctly identify the difference between a defined benefit pension and a defined contribution pension.
And although almost three quarters of people agree that they should be given advice about pensions, only a fifth actually receive it.
This lack of understanding and knowledge about pensions is something that needs addressing.
Purchases made for the employer
Employers often reimburse their employees for expenses incurred while working away from home. These include travel costs, accommodation, meals, telephone calls and internet access. They may even pay for items such as clothing and equipment. However, the tax code states that reimbursed expenses are not considered to be taxable income. This means that employees should report any reimbursement made on their behalf as part of their personal income.
Reimbursements made on behalf of the employee do not feature on form P11D. Therefore, businesses must ensure that all expenses are reported as part of the employee’s gross salary. If the expense is not covered by the employer, it should be added to the employee’s taxable income.
Businesses must ensure that all reimbursed expenses are recorded correctly. For example, if an employee uses her mobile phone to make a call during the day, she should record the cost of the call as part of her daily traveling allowance. Similarly, if an employee pays for his or her lunch out of pocket, he or she should claim the cost as a deduction against the employee’s taxable income rather than as a reimbursement.
Removal expenses and benefits
The removal expenses include moving costs such as packing and unpacking boxes; furniture removals; storage fees; and other items such as car hire, gym memberships, and free parking.
Benefits include accommodation, travel and subsistence allowances, and other items including free parking, gym membership, and other miscellaneous items.
There is relief where the removal expenses are less than £8,000 and the benefit exceeds £8,00 0.
Administration fees charged by relocation companies are considered to be an expense incurred by the employer.
Retraining expenses and courses
Employers are being encouraged to offer retraining schemes to help employees find new jobs. But there are rules about what they can do. Here’s everything you need to know about retraining and how it could benefit your business.
There is a limit on how many times you can claim back for each individual worker. You cannot claim back for retraining someone twice. So if you train someone once and they go on to get another job within six months, you cannot claim back again. However, if they take longer than six months to find a new job, you can still claim back up to three times.
If the course starts before the end date, employers must pay back any costs incurred. For example, if you start a course on January 1st and finish it on February 28th, you must reimburse the employer for the full amount spent on the course.
Some people make the trip from home to work
The majority of employers provide some form of transport subsidy to their employees. This includes both public transport and car parking costs. Some employers even provide transport as part of a wider benefits package.
But what happens where there is no transport subsidy? What about employers who don’t provide transport as part of their benefits package? And what about employers who do provide transport but don’t give a subsidy?
In this article we look at how employers can help their employees access public transport and walk or cycle to work. We cover the different options available to employers, including providing transport subsidies, paying for transport or reimbursing employees for travel expenses.
We also explain why it makes sense for employers to support their employees’ use of public transport, and whether employers should consider offering transport subsidies for cycling and walking.
Employees should be aware of any limitations on sports facilities use before signing on. Employers must ensure that all employees have adequate access to sports facilities.
The government has announced it will raise the amount you can claim for benefits from April 2020. This includes personal independence payments (PIP), employment support allowance (ESA), carer’s allowance, income support, housing benefit and council tax reduction. From April 2020 the maximum annual benefit limit will rise from £23,250 to £24,000 per annum.
Benefits are exempt from tax and National Insurance contributions if all the following conditions are met:
• You are entitled to receive one of the benefits listed above
• Your entitlement is based on being unemployed
• All the conditions of the relevant payment scheme apply
• You are aged 16 or over
• You are resident in Great Britain
Work-related training expenses
The ATO says it wants to make sure you’re getting value for money when it comes to work-related training. So what exactly counts as “training”? And how much tax do you pay on it?
In short, there are three main types of work-related training:
1. Internal training – things like courses, seminars, conferences, workshops and online learning.
2. External training – things like apprenticeships, placements and internships.
3. Equipment – things like laptops, tablets, smartphones, cars, vans, tools, machinery, vehicles and anything else used in your job.
There’s a wide statutory exemption for all forms of work-related training. But if there is a mixture or reward and training, apportionment is required. If there is a mixture or a reward and training, apportionment applies.
Exemptions apply to both Internal and External training.
Workplace nurseries and other forms of childcare provided by employers
Employers can provide childcare subsidies that enable employees to claim tax credits against their income. The government provides funding for childcare subsidies via the Child Care Benefit Scheme.
The Child Care Benefit is paid monthly to parents whose youngest child lives with them and works part-time. Eligible workers must earn less than £107 per week ($150), and their total weekly earnings cannot exceed £140 ($200).
In addition to the Child Care Benefit, there are several other types of childcare assistance available to Australian families. Some of these include:
• Parental Leave Pay – Paid parental leave allows eligible employees to take up to 12 weeks unpaid leave each year.
• Family Tax Benefits – A range of family tax benefits are available to help low-income families. For example, the Working Parents’ Benefit helps people who do shiftwork, or those who work long hours.
• Schoolkids Bonus – This bonus is paid to primary school students every September. It is designed to encourage young Australians to complete Year 11 studies.
• Childcare Rebate – This rebate is available to families with children aged three and four. It is worth up to $100 per month.
Frequently Asked Questions
What income is taxable?
Taxpayers must report every month how much money they earned during the previous calendar month. They are required to declare all of their earnings and pay taxes on those amounts. Income is defined as anything you receive that is paid regularly each month. For example, wages, salaries, tips, interest, dividends, rent, royalties, pensions, annuities and prizes are all examples of types of income.
Some people think that they do not have to pay income tax because some of their income is considered to be non-taxable. However, there are many different ways in which people can claim that certain items of income are not taxable. These might include:
• being under age 16;
• being over 65;
• receiving gifts, legacies, inheritances or donations;
• having a pension or benefits from work;
• being self-employed;
What income is tax-free?
The UK government provides support to those in certain times of need by way of the state benefit system. This helps people who are unemployed, disabled, sick, elderly etc. There are many different types of benefits, including Jobseekers Allowance, Housing Benefit, Child Support, Carer’s Allowance, Pension Credit, Working Tax Credits, Universal Credit, Disability Living Allowance and Employment Support Allowance. All of these come under the heading of state benefits.
Income that is tax free is usually paid to you without tax being taken off it. However, there are exceptions. For example, the amount that you earn over £10,600 per annum is taxed. If you are entitled to state benefits, however, you do not pay tax on the money you receive. Your employer pays tax on any earnings that you make above the threshold.