Small business owners often feel duty bound to increase salaries on an annual basis and one alternative is to offer additional benefits instead of hard cash. Each of these is tax free to the employee and tax deductible for the company.
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Being a director of a company means that you are also an employee. This means the same rules apply to you as they would if you were working for any other employer.
The provision of a mobile phone carries no tax liability for either the employee or the company. The cost of the mobile phone will reduce the company’s corporation tax bill as long as the bill is in the name of the business and not the employee. The benefit does not need to be reported on the P11d of the employee.
If you make business related trips in your own car, you may claim back the cost of mileage. Currently the HMRC approved rates are 45 pence for the first 10,000 business miles, and 25 pence thereafter. Parking is another cost the company can reimburse its employees for. The cost of providing these benefits is also deductible against the business corporation tax bill.
Incidental overnight expenses
Payments your employer makes for personal expenditure qualify for tax relief, up to certain limits, when you stay away from home for at least one night during a business journey. The maximum amounts that may be paid without any tax consequences are:
- £5 a night for each night away during business journeys anywhere in the UK
- £10 a night for each night away during business journeys outside the UK.
Interest free loans
As an employer you can provide an interest free loan to an employee up to £10,000. This loan could be used by the employee to purchase a season ticket, for example, and there are no tax implications for providing such a loan as long as it is repaid.
Cost of Relocation
An employee can be rewarded by covering the costs of relocation. If you are taking a new contract and need to move house this added tax-free benefit could come in handy. The company can cover employee moving costs, up to £8,000.
Use of home as office
Contractors and freelancers often work from home. They may claim back the higher of £4 a week or £18 a months without providing any invoices.
They may claim actual costs if they work extensively from home. The actual expenses may include rent, mortgage interest, utility expenses etc. These will be apportioned on the basis of time spent and space used for business purposes.
Eye tests are not deemed a taxable benefit (but health insurance is) and are actually a legal obligation for companies whose employees use computers for a significant part of their working day. They are fully deductible against corporation tax for companies and not subject to employer’s national insurance.
Medical treatment abroad
The cost of necessary medical treatment abroad paid for by your employer or paid by you and reimbursed to you by your employer, where you fall ill or suffer injury while away from the United Kingdom in the performance of your duties is not liable for tax. The cost of providing insurance for you against the cost of treatment is also non-taxable.
Employer-funded or employer-reimbursed training
This exemption covers the costs borne by your employer of work-related training within the whole range of practical or theoretical skills and competences you are reasonably likely to need in your present or likely future jobs with your employer.
Bicycles and cycling safety equipment
If you cycle to work, the company can provide you with a bike and helmet for your travels. Reasonable personal use of the bike is allowed, although the bike must be used predominantly for work.
Christmas or other annual party
Annual parties or alternative functions of a similar nature, such as a Christmas dinner and a summer party, which are open to staff and cost no more than £150 a head in total are also a tax free benefit for employees.
If you have formed your own limited company, there are also a number of business related expenses you can claim.
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