Do you want to get the most out of your employee perks? Well, the benefits aren’t about your salary anymore! When working in an organisation, you are entitled to certain benefits, except for your basic salary. However, some of them are taxable, and some of them are not. In this article, we will discuss tax free benefits in detail and also the situations where the benefits may be partly taxable.

What Are Taxable Benefits?

Taxable benefits (benefits in kind) are perks or non-cash rewards provided by an employer that have a cash value and are taxed as part of your employment income. Furthermore, these benefits have a monetary value and must be reported to the HMRC. They are treated as additional income, and employees are subject to Income Tax. These specific rules are set by the HMRC.

Which Benefits Are Taxable?

The following are the perks that are provided by an employer in addition to their basic salary that are taxable:

• Company Vehicle and Fuel 

If you are an employee and are using your company’s car or van for your personal use, you must pay tax on it. The tax amount depends on the vehicle’s market price, its fuel type, accessories and CO2 emissions.

• Medical Insurance

Allowances paid by your employer for your private medical or dental insurance are also taxable.

• Accommodation

Housing provided by an employer is also a taxable benefit unless it is essential for a job, such as a live-in caretaker.

• Loans Provided to Employees

In the UK, loans provided to employees become a taxable benefit-in-kind if the total outstanding amount exceeds £10,000 at any point during the tax year. If this threshold is crossed, the loan is not tax-free. And the employee will be taxed on the interest benefit they receive. 

What Are Tax Free Benefits? 

They are the perks provided by an employer that are exempt from Income Tax and, in most cases, National Insurance contributions. It must meet specific HMRC exemption criteria; otherwise, it becomes taxable. These benefits are mostly work-related or are designed to improve employee welfare, and a specific criteria that have to be met to qualify for the exemption.  Employers should make sure they are offering appropriate tax free benefits to their employees.

Which Benefits Are Non-Taxable?

Your employer can offer you some nice perks that are totally tax free benefits. They often come with rules, but here are some of the main ones to know about.

• Annual Parties

You don’t have to pay tax on your staff parties, like a Christmas do, but there’s a limit. The total cost for all yearly events must stay under £150 per person (it’s an exemption, not an allowance), and the events must be open to all employees, not just some. This is a great example of tax-free benefits for employees. If it exceeds £150 per head, even by £1, the full benefit becomes taxable for the annual parties.

• Workplace Meals

Enjoy free or cheap meals from your employer? You won’t pay tax on them if they’re provided on your company’s property and are available to all staff. But if you’ve given up some of your salary to get the meal, it doesn’t come under tax free benefits. The food also has to be ‘on a reasonable scale’.

• Office Supplies

If your employer gives you equipment or supplies for your job, it’s not a taxable benefit. This applies as long as you’re not using it for personal reasons most of the time. The rule works whether you’re at the office or working from home. These types of tax free benefits help ensure you can do your job efficiently. Offering tax free benefits like parking spaces can significantly improve employee satisfaction.

• Parking

That parking space your company provides for you is tax-free. It doesn’t matter if you’re parking your car, motorcycle, or bicycle, as long as it’s at or near your workplace.

Situations When Benefits May Partly Be Taxable

Based on HMRC rules, employee benefits can be partly taxable in these situations: 

• If you contribute towards a taxable benefit, your payment is deducted from the value, reducing the amount you are taxed on.
• If you use a company asset, like equipment, for both work and personal reasons, the taxable value is reduced based on your business use.
• A loan from your employer is only taxable if it is over £10,000.
• You are not taxed on a company van if private use is insignificant.
• If a benefit exceeds a set limit, only the amount above that limit may be taxable. For example, some long-service awards can be partly taxable.
• A benefit might be mostly tax-free, but with a specific element that is taxable. For instance, some welfare counselling services are tax-exempt, but advice on finance or tax is not.

How Can Employers Provide Tax Free Company Benefits?

Employers can provide a range of tax free company benefits to enhance employee satisfaction and ensure compliance with tax laws. These include things like free parking, annual parties, and qualifying workplace meals, provided specific HMRC rules are followed. All these can contribute to a positive work environment while also offering employees financial advantages through tax-free employee benefits.

Conclusion

Benefits are essential for every employee working in a professional organisation. For employees, understanding which tax free benefits are available to them can help them plan better and ensure they are making the most out of their tax-free benefits.  Employers who are providing benefits, like company cars, private health insurance or any interest-free loans, have to understand their obligations to pay Income Tax and associated National Insurance contributions. 

Being aware of the rules around tax-free employee benefits can lead to better financial planning and more effective use of perks in the workplace.

Disclaimer: This article is general in nature; it does not intend to disregard any professional advice.