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 can be particularly challenging!
We can advise you on the provision of tax-efficient benefits, prepare your forms P11D and how to avoid the common pitfalls with business travel and subsistence.
"Ensuring that you keep the right records can keep you out of trouble in the future."
Company vehicles are often a source of contention within a business as running costs seem to be constantly on the rise. Even though the tax cost of providing company vehicles to employees is rising, 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's important that adequate records are kept to prove that no private use has been incurred.
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 from enhanced tax relief.
It can sometimes 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.
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 several benefits that can be provided to employees in a tax-efficient manner thus increasing the value of the benefit to the employee. These include electric vehicles, car parking, social functions, child care vouchers, life insurance 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 taking 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.
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).
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 are much lower and the capital gains tax benefits may not be as great.
Shares or options offered to employees in a non HMRC approved arrangement could result in higher tax liabilities arising.
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.
Payments for business travel in the employee’s ‘own car can be reimbursed free of tax and national insurance. Where there is business travel, payment for subsistence can also be made free of tax and national insurance subject to certain conditions.
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 on different rates with HMRC again using a dispensation.
There are special rules where there is overseas travel.