Are you aware that you can make use of your benefits-in-kind to extract funds from your family company tax-free? Find out more by reading the blog below.
As an employer you can give each of your employee’s a mobile phone each without incurring any tax charges.
If you as an employer choose to pay your employee’s private bill or issue them with top-up vouchers, then this will be charged as a taxable benefit.
Peter and Sarah are directors of their family catering business.
Their son Mark also works for the business. The company takes out three contract mobile phones for each family member.
The bills are paid directly from the business to the phone director. The bills are deducted in the computing profits, so each family member has use of a phone tax-free.
Pensions are one of the most tax-efficient form of savings as nearly everyone will receive relief on contributions up to an annual maximum regardless of whether they pay tax or not.
If you are a non-taxpayer, you can receive a basic rate tax relief of £3,600. It is possible to invest higher amounts, but tax relief will not be given on the excess.
If you own more than 20% of a company’s share capital, then you will be classed by HMRC as a controlling Director.
You should be aware that if contributions are made to a controlling director or to their relative or close friend, this will likely be queried by HMRC.
HMRC will examine whether a payment is made for the purpose of the trade by investigating the intention of the payment.
What are the conditions?
Pension contributions will be viewed with the overall remuneration package, and the contributions may be disallowed if the package is excessive for the value of the work that has been done.
HMRC will only accept contributions when they are paid ‘wholly and exclusively for the purposes of the trade’.
Other tax-free benefits
There are many other tax-free benefits that may apply to family companies such as:
- Medical treatments recommended by employer-arranged occupational health services (but there is a cap of £500 per employee)
- One health screening and one medical check-up per employee, per year
- Gifts not costing more than £250 per year from any one donor
- Christmas parties and dinners etc but the cost must be up to £150 per person each year
- Bicycles or bicycle safety equipment for travel to work
It is worth considering the tax benefits of employing family members as this will provide the company with lower tax rates and the employees tax-free benefits as well as reducing the households tax bill.
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