How you can offer your employees maximum benefits
It is always important to ensure that your employees get the maximum benefits possible from
working for you, both as a way to retain the best talent in your company by boosting morale,
and for your employees to save money, and feel secure in their workplace.
We are breaking down the many ways in which your company can offer excellent benefits to
your employees, all counting as tax-free expenses.
How can an employer offer employees something tax-free?
There are a number of non-taxable employee benefits and payments which you should know
about, as they allow you to provide benefits to your employees that they may deem very
valuable, at minimal cost to you. For most companies, this is a no-brainer.
To illustrate how this works on a day-to-day level, let’s use the example employee Joe
Bloggs, who works for Alpha Services. Both parties can benefit when Alpha Services offers
Joe things like advice on pensions, work-related training, and more. The below are all non-
taxable.
Tax-free employee expenses:
● Sticking with our example, Alpha Services can fund certain kinds of independent
advice in relation to employee shareholder agreements. This could benefit Joe
Bloggs without being taxable for the company.
● Annual parties or functions to celebrate employee or company success, or simply to
boost morale, are exempt. As long as they incur costs of no more than £150 per
head, then Alpha Services can throw a yearly bash for their staff, tax-free.
● One of Joe’s colleagues, Natalie, uses a wheelchair, and Alpha Services are not
taxed on the benefit of the private use of her wheelchair, as this enables her to work
for her employer. Similarly, for any other people using equipment or services to help
with their job (such as a walking stick or a hearing aid), this would be exempt also.
● Alpha Services regularly provides family fun days at their offices, where employees
can bring along their family members and enjoy food and entertainment. This
“goodwill entertainment” cost Alpha less than £250, so it is exempt from tax, subject
to various conditions.
● Once a year, Alpha Services provides Joe Bloggs and his colleagues with a health
check up or medical screening to ensure everyone is in shipshape, which is also
exempt.
● When Joe works late during big deadlines, a late night taxi is provided for him to
make sure he gets home safe, and this is exempt. Again, this would be subject to
certain conditions, such as the travel needing to take place after 9pm, but this does
apply when necessary.
● Sometimes Alpha Services provides free or subsidised meals for Joe and his team
when they close a big contract. This comes with certain conditions, but is a great
initiative as employees really appreciate this added extra.
● When Joe travels abroad on business for Alpha Services, any medical treatment he
needs (whether due to illness or injury) can be taken care of by the company, tax-
free.
● Alpha Services provides Joe with one mobile phone (for his use only, not to be
distributed to a family member) on a tax-free basis. Should Alpha decide to simply
give Joe money towards his own mobile phone in the future, this would be taxable.
● Alpha Services provides Joe with a car parking space near the Alpha building to
make his travel easier, which is exempt. They do the same for other employees,
providing motorcycle or bicycle parking spaces, too.
● Joe and Alpha Services have recently agreed to more flexible working arrangements,
which means he will be working from home a lot more. In this instance, Alpha can
pay up to £4 per week, £18 per month or £216 per year without supporting evidence
of this. Should Alpha end up paying more to Joe, they will be required to provide
evidence, or have an agreement in place with HMRC.
● Alpha Services help their employees with organising their pension, annuity, lump
sum, gratuity and similar benefits, and do not need to pay tax on any expenses
incurred during this process. They do this for Joe too, and this extends to any
member of his family or household that they help should he retire or pass away.
● Joe is nearing retirement age in a few years, so Alpha Services have offered him
pension advice up to the value of £500. Though this is often offered to those nearing
retirement age, younger employees can also benefit from this, and it is tax-free.
● When Joe buys equipment, stationery or anything else needed to perform his duties,
and uses his own payment card, Alpha Services reimburse him for this, as long as
the items were for work use and not personal. This is tax-free.
● Joe Bloggs had to relocate in order to take up his position at Alpha Services, so the
company paid for his removal expenses, exempt from tax and NICs. This is subject
to certain terms, but essentially the first £8,000 of Joe’s moving expenses may
qualify for this exemption.
● In order for Joe to advance in his career and further his development, ongoing
training is provided by Alpha Services to help Joe grow in his role. The costs incurred
from this are exempt from tax.
● Alpha Services wants all employees to be as healthy as possible, so they provide
their staff, including Joe, with a gym membership. As standard, any sports facilities
provided by an employer for staff and their families can be exempt.
● Access to mental health services is important to the management team at Alpha
Services, in order to minimise absenteeism due to stress and burnout. They provide
Joe and the rest of their employees with optional welfare counselling, which is
exempt from tax.
● Alpha Services sometimes provide Joe and his team with transport options to take
them to and from work, meetings and trainings. The expense of shared vehicles,
buses, bicycles or subsidised public transport is exempt from tax. Similarly, if Joe is
travelling for work and incurs the cost of strikes or industrial action, fees or tolls, or
unexpected accommodation needs, Alpha Services can reimburse him on a tax-free
basis.
● As a general rule, most employee benefits are exempt from tax and NICs if the cost
does not exceed £50. This is subject to many conditions, so it is always best to chat
to an advisor where possible.
If you want to find out more about how you can maximise your employee benefits, get in
touch with our team at Price & Accountants and we would be happy to help. We are
committed to helping small businesses in London and around the UK with their accounting
needs, using Xero online accounting software and our expert team of advisors, all dedicated
to helping your business flourish.
TAX ON DIRECTOR’S LOANS: Shorten the accounting period to avoid s.455 charge
What happens when a company director borrows money from their business to help with personal finance, but struggles to repay the loan? While this can be stressful, there are ways to postpone the repayment cutoff in order to avoid the s.455 tax charge. Here’s what you need to know:
The situation
As an example, let’s say Joe Bloggs of Alpha Services borrowed £75,000 from his personal company on 20th March 2019, to help pay for an upcoming home move. He did this as a taxable benefit in kind, and an alternative to taking out a bridging loan, thinking it would save him paying the interest.
Joe intended to repay the loan quickly once his previous property was sold, but after months of negotiation, the potential buyer pulled out in July 2019, and interest in the property has since dried up.
Joe is now concerned about having to pay the 32.5% corporation tax charge under s.455 Corporation Tax Act (CTA) 2010, which would amount to £24,375, and is payable to HMRC.
What is the nine-month rule?
Alpha Services may be able to avoid this payment if Joe can repay the loan to the company before 31st December 2019. This is because the charge only has to be paid to the extent that the loan has not been repaid within nine months of the relevant year end.
Typically this would mean voting a dividend which is credited against the loan balance, but this would be taxable income for Joe Bloggs who is a higher rate taxpayer, so in this instance it doesn’t offer much help.
Alternatively, Joe could borrow funds from a bank to repay the loan, then use the eventual proceeds to repay the bank loan. Though this would mean he will need to pay interest, it will still be lower than the tax payable on a large dividend. If, however, Joe struggles to raise finance quickly, he may run into further problems.
So what would we recommend here at Price & Accountants? A great way to make this work for you is to change the accounting date.
What does it mean to change the accounting date?
Joe Bloggs could alter the Alpha Services accounting date to just before the loan was issued, meaning the loan would essentially disappear from the records until the next accounting period, giving Joe more time to sell his property and repay the company without being required to pay the s.455 charge.
Doing this would mean that, if the loan was issued on 20th March 2019, and Joe changes his company’s accounting date to 28th February 2019, the loan will not show up in the accounts until the year ending 28th February 2020, giving him until 30th November 2020 to sell his house and pay back the loan.
What about changing this back?
Joe can shorten the company’s accounting period as many times as he likes, but can only lengthen it once every 5 years, with some exceptions. Provided that Alpha Services has not changed the date before, Joe can revert back to a 31st March year-end whenever he wishes, if at all.
If you want to find out more about tax on your director’s loan, get in touch with our team at Price & Accountants. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
SELL, DON’T GIFT: HOW TO SIGNIFICANTLY REDUCE YOUR TAX BILL BY SELLING SHARES TO YOUR PARTNER
Looking to become more tax efficient this year? Gifting shares of your business to your
spouse is often recommended by small business accountants and tax advisors. This is to
make use of both yours and your partner’s tax-free allowances, and ultimately minimise the tax
on dividends the company pays. This is a great move to be tax efficient, however if you’re looking for
ways to save even more and you also happen to have a mortgage, your accounting firm may
not have told you to consider selling shares instead of gifting them. Here’s what you need to
know:
Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly
with your spouse whenever one of you is paying a higher rate of tax than the other. When
you both own shares in the company, you are both entitled to use your tax-free allowances,
dividend nil rate band, and other rate bands, in order to reduce the tax paid on your
company dividends. Owning with your partner is a great way to become more tax efficient.
Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s
definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will
still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No
matter how long ago you have incorporated your company, you can still make your spouse
a shareholder at any time.
How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably
since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000
per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe
would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of
the shares of Joe Bloggs Ltd. to Jane, in order to utilise the most of her tax-free allowances
and basic rate band.
So why is it better to sell and not gift the shares?
Here’s where it gets interesting. Typically, tax experts will advise you to gift the shares to
your spouse to save, which is acceptable. However, if you are currently paying off a
mortgage on your home, it may be more tax efficient for you to sell the shares to them at a
reduced rate instead. Selling the shares allows you to structure the transaction in such a way
that you receive tax relief on the interest you pay.
How does this work?
Let’s say Joe and Jane have a mortgage of £200,000 on their home, and the interest they
pay on this loan is around £11,000 each year. Tax relief does not apply to loans used to buy
your home, but it often does when you are buying shares in a company (note: conditions
often apply).
If Joe sells shares to Jane for a discounted rate (we’ll use £100,000 as an example) instead
of gifting them to her, the loan that Jane takes out to make this purchase will then qualify for
tax relief. They can then use this money to pay back £100,000 of their mortgage.
In doing so, Joe and Jane have effectively switched the £100,000 payment to pay towards
their home mortgage instead of the sale of shares in the company. The interest from the
money that goes towards the sale of shares qualifies for tax relief, meaning the interest paid
is around £5,500 per year, and around £1,100 of this gets knocked off their tax bill.
If you believe you could qualify for tax relief by implementing the plan above, you can
discover the savings you could make in your business by filling in your details on our quick
form at the link below, and we’ll send you a free, simple table to help calculate.
You can also get in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.