Employee benefits form an important part of a remuneration package particularly for directors and key employees. The rules for calculating and taxing benefits in kind are complex and there are many pitfalls for the unwary; the completion of form P11d is particularly challenging!
We can advise on the provisions of tax efficient benefits, prepare your forms P11d and apply to HMRC for expenses dispensations on behalf of clients.
Company vehicles are often a source of contention within a business as running costs seem to be constantly on the rise. The tax cost of providing company vehicles to employees is also rising, but now with careful tax planning it is possible to keep these to a minimum.
Often where employees require a van for work they are provided by the employer. Where an employee has a company van made available for private use a benefit in kind can arise. It is possible to eliminate this cost by prohibiting private use but it is important that adequate records are kept to prove that no private use has been incurred.
In order to incentivise vehicle manufacturers to improve vehicle efficiency, and to reduce the harm they cause to the environment, company cars are taxed based on their CO2 emissions. HM Revenue & Customs have also introduced enhanced tax reliefs for those businesses purchasing low emission vehicles which can also benefit of enhanced tax relief.
In many cases it can be more tax efficient to withdraw company cars and offer employees a car allowance or loan and pay them a mileage rate for business mileage travelled.
Company vehicles are also often a source of investigation for HM Revenue & Customs. Ensuring that you keep the right records can keep you out of trouble in the future.
Call our tax department for a review of your company vehicle policies for potential savings or for information on what records should be kept.
Tax Efficient Benefits
Non cash remuneration always has a place in remuneration planning and in difficult financial times it makes sense for employers to find more cost effective ways to reward and motivate their employees. There are a number of benefits that can be provided to employees in a tax efficient manner thus increasing the value of the benefit to the employee. These include car parking, social functions, child care vouchers and interest free loans to name but a few. Many employees would be willing to sacrifice salary for additional holidays, or if work commitments allow to take a sabbatical for a longer period.
Employers should not overlook the value of non financial rewards such an investment in staff training and a sense of belonging to an organisation which values their contribution.
Employee Share Schemes
Allowing employees to hold shares in their employer’s company can be rewarding for both employer and employee. Where an employee holds shares they will be motivated to improve the company’s performance to increase the value of their shares.
There are various tax favoured share options schemes that can be used to give employees shares the most popular being the Enterprise Management Incentive Scheme (EMI) which can be used by companies of all sizes. There are both income tax and capital gains tax benefits for an employee who is granted an option under an EMI scheme. Another scheme suitable for medium size companies is the Company Share Option Scheme but the values of shares that can be offered under this scheme is much lower and the capital gains tax benefits may not be as great.
Where an unapproved scheme is used to grant shares to employees there may be substantial tax liabilities arising.
Travel & Subsistence
Payments for business travel in the employee’s ‘own car can be reimbursed free of tax and national insurance. Where there is business travel then subsistence can also be paid free of tax and national insurance subject to certain conditions. We recommend that clients obtain a dispensation from HMRC if they make payments for subsistence. It is interesting that HMRC will not agree to employers using the same generous overnight subsistence rates paid by the Civil Service to their own staff! We can assist clients to obtain a dispensation so that they do not need to prepare forms P11d where subsistence is paid and they have the comfort of knowing that the payments have been approved by HMRC.
There are scale rates for day subsistence of £5 where the worker is away from their normal place of work for at least 5 hours and £10 where it is at least ten hours. Employers are not obliged to use these recommended rates and can agree different rates with HRMC again using a dispensation.
There are special rules where there is overseas travel.