Believe it or not, sometimes the taxman actually gives as well as takes, and it is possible for directors to enjoy a number of perks tax-free. This can help directors or family members to extract profits in a tax efficient manner. Here are some of the most popular tax-free perks.
Claire has recorded a handy video on the tax perks, or you can read about them below.
If you are a director of a family or personally owned company, it makes sense for the company to meet your mobile phone costs. Provided certain conditions are met you can enjoy this benefit free of tax and National Insurance Contributions, and the company can deduct the cost from its profits when calculating its corporation tax.
So what conditions need to be met?
- Firstly, the mobile phone contract must be between the company and the phone provider,
- Secondly, the phone is made available for you but it is owned by the company, and
- Finally, the company pays the phone bill.
The exemption is limited to one phone per director or employee (so a phone can only be provided for family members if they are employees or directors). It applies to all mobile phones including smartphones designed for making voice calls, but not to devices such as iPads which can be used for voice over internet calls.
The tax charge on company cars can be expensive, which means that often it is not worth providing a director with a company car unless it is a cheap, low emission car.
Where you use your own car for business journeys, you can claim an approved HMRC mileage allowance. This is free of tax and National Insurance and doesn’t need including on your P11D as long it doesn’t exceed the agreed rate. The rate is 45 pence per mile for the first 10,000 business miles in the tax year and 25 pence per mile for any subsequent miles.
Mileage allowances paid to directors are deductible against the company’s profit for corporation tax and the VAT element can be reclaimed if the company is VAT registered. The VAT is calculated using the HMRC advisory fuel rates.
If you have children you’ll know only too well that childcare is expensive. Childcare vouchers can be provided tax-free up to the exempt amount, which is £55 per week for basic taxpayers, £28 per week for higher rate taxpayers and £25 per week for additional rate taxpayers. The government website www.childcarechoices.gov.uk sets out a variety of tax efficient options for assistance with childcare costs, and it is advisable to see what works best for your personal circumstances.
The cost of parking, particularly in a town or city centre can soon add up. HMRC offer a parking tax exemption where the company meets the cost of parking at or near your place of work, you incur no tax charge on this benefit.
Company pension payments towards your pension can be a significant benefit. As long as the contributions are to a registered pension scheme they don’t result in any income tax liability. The pension payments are usually deductible in calculating the company’s taxable profits. There is an annual tax-free allowance for contributions which can be made into your pension. Employers pension contributions are taken into account when assessing whether this allowance has been reached in the year.
There is also a separate exemption which allows up to £500 of pension advice a year tax-free.
Always very popular, there is an annual exemption which applies to an annual party or similar functions and is capped at £150 per head. The per head figure can include guests and where there is more than one event a year, the exemption applies to as many events as fall completely within the £150 per head allowance.
A word of caution, if the cost per head of a function is not completely within the allowance the full amount is taxable as an employee benefit in kind. The cash equivalent of your benefit will include the cost of your guests.
Private medical insurance is a taxable benefit. However, an annual health screening assessment and medical checkup can be provided each year without it being considered a benefit in kind.
If you have been off work as a result of an injury or a period of ill health, the company can meet the cost of recommended medical treatment to assist your return to work. No taxable benefit is triggered as long as the cost is capped at £500 a year.
Rewarding Long Service
Long service awards are tax exempt as long as they don’t exceed £50 for each year of service. You must have been employed by your company for at least 20 years, and you can’t have had a long service award within the previous 10 years. So, for example, after 20 years of service you could receive a tax-free reward worth up to £1,000. The reward can’t be in the form of cash, a voucher or shares, but as long as it is something tangible, for example a watch, a painting or jewellery, the exemption can be claimed.
Trivial but Worthwhile
The trivial benefits tax exemption allows a company to provide benefits costing not more than £50 to employees tax-free. The benefit cannot be cash or cash vouchers and, for directors of a company with 5 or fewer shareholders, the benefit is capped at £300 per year. The exemption can be used for example to provide a £25 monthly treat of flowers, a meal, or a bottle of wine.
I hope you found that useful. If you have any queries, please get in touch with us. We’d love to help.