Employee perks and tax - what you need to knowBack
Whilst the UK’s economy has taken a bit of a beating over the past few years, things are beginning to settle now, and the employment market is thriving. This is good news for employees, but potentially not so great for employers. With more options available, employees can now choose to be pickier about the jobs that they go for, meaning businesses have to work harder to attract the skilled and talented employees they desire.
One of the ways in which businesses can appeal more to potential employees is to offer a great employee benefits package, which rewards employees for their hard work and dedication. It doesn’t only draw in new talent, it also helps with employee retention and boosts morale and productivity amongst your existing team.
A 2015 Employment Confidence Survey by Glassdoor emphasised that 60% of respondents said that employee benefits were a significant factor in deciding whether to accept a job offer, whilst 80% of employees would choose additional benefits over a pay rise. A further 36% of employees said that improving their current benefits package would be a deciding factor in whether to stay in a job or not.
Based on this, as an employer it is important that you know what the best types of perks are for you to offer, and how this will affect your tax obligations.
What perks could you offer?
The sky is the limit when it comes to what benefits you can offer to your employees. It really depends on what you think would appeal the most to your employees, what you can afford and what will make you stand out. Here are some of the perks offered by industry leaders, that have gone down well with their employees:
- Airbnb offers their team members $2000 to spend on travel and seeing the world.
- Peninsula Business Services, a HR, employment law and health and safety consultancy provides an annual Christmas party for the children of their employees.
- AutoTrader UK offers employees the chance to join their wine club, where they get high-end, heavily discounted wine delivered to their front door every month.
- Huddle, a software company, offers a joining bonus of £5,000 (called a ‘Huddle Cuddle’) and a gift worth £500 every year.
Tax free perks
There are tax free perks which you could offer, which don’t affect either yours or your employee’s tax obligations, as long as you conform to certain guidelines. Some examples of these include:
You can offer employees childcare vouchers up to the value of £55 per week tax-free. Anything over £55 per week will be taxable to your employee.
Bikes and cycle safety equipment
Not only is this a great option for employees who are interested in cycling, it is also a good choice for businesses who choose to be environmentally friendly, encouraging employees to commute to work without harming the environment.
You don’t have to pay tax on this perk as long as you ensure that:
- Bikes and cycling equipment is available to all employees
- The bicycle provided is predominantly used for cycling to and from work
You may also provide your employees with a meal or snacks when they arrive to work having cycled in on a designated ‘cycle day’. It is up to you as the employer to ensure that the bikes are being used for travel to and from work so that they remain tax-free.
You can provide employees with a yearly health check-up and screening tax-free. It is also tax-free if you pay for treatment abroad for employees who have fallen ill or been injured in the performance of their duties away from the UK.
Annual parties including a Christmas party or summer party are tax free as long as the party is open to all staff, and the party costs no more than £150 per head. This is a popular option for businesses, because it is a way to benefit all employees at once, and is a great way to boost morale and work as a team bonding exercise.
Taxable employee perks
For the most part, employee perks will be taxable, meaning that you are required to report them. This is done via the P11D form.
What is a P11D?
This form is used to report benefits in kind, which are the things that an employee receives in addition to their salary. This would include employee perks, interest-free loans, private healthcare and so on. These benefits technically increase an employees salary, meaning that tax needs to be paid on them, as well as National Insurance contributions (NICs). NICs are paid for by the employer, and it is their responsibility to file the P11D forms.
What should be include in a P11D?
You need to make a note of anything that your company pays for, and your employees benefit from, so that this can be included on your P11D. The benefits that need to be reported can include:
- Loans for rail season tickets
- Any other loans
- Company cars
- Health insurance
- Non-business travel expenses
- Non-business entertainment expenses
- Self assessment fees which have been paid by the company
- Assets that have significant personal use, and have been provided to an employee by the company.
What exemptions are there?
- Business travel expenses
- Business entertainment expenses
- Business credit cards
- Business fees and subscriptions
As of April 2016, business expenses incurred personally by employees no longer need to be included on the P11D form, as they fall under the new ‘exemption system’.
When should I file my P11D?
P11D forms need to be filed by 6th July on the following year of the tax year in question. So, for the tax year 2019/20, the P11D form must be filed by 6th July 2020 and so on. Tax that is due according to the form will need to be paid in full by the 22nd July of that same year.
You can file paper P11D forms by sending them to
P11D Support Team
HM Revenue and Customs
To file online you can use:
- Commercial payroll software
- HMRC’s PAYE Online service
- HMRC’s Online End of Year Expenses and Benefits service
Benefits and perks are a great way to attract and retain the best talent. There are a number of these that are tax free but not that many, so most are treated as benefits in kind and are taxable as if an equivalent monetary value had been paid to the staff member.
The rules are complex and its no exaggeration to say they are positively byzantine in some instances, so it is best to get them checked out by a properly qualified member of staff or outside accountancy firm.
TFMC can help in this regard. In addition to providing the full range of accountancy services, we also are at the other end of a phone if a client needs help with technical questions such as this. Contact us on 0800 470 4820 or email firstname.lastname@example.org for more information