Making good use of tax-free employee benefits

Salary is not the only way in which an employer can reward employees.

Certain benefits can be provided without creating an Income Tax or National Insurance liability, provided the relevant conditions are satisfied.

One example is the trivial benefits exemption. A qualifying benefit must cost no more than £50, must not be cash or a cash voucher, must not be provided as a reward for work and must not be provided under a salary sacrifice arrangement.

There is no general annual limit on qualifying trivial benefits for ordinary employees. However, directors and office holders of close companies, together with members of their families or households, are subject to a £300 annual cap.

Other exemptions may apply to areas such as employer-provided mobile phones, certain workplace parking, qualifying employer pension contributions and annual staff functions.

For annual parties and similar functions, an exemption can apply where the event is open to employees generally and the annual cost does not exceed the statutory limit per head. Care is required because this is an exemption rather than an allowance. If the relevant conditions are not met, the tax treatment can change.

Employers may also be able to provide certain work-related training and other facilities without creating a taxable benefit.

The detailed rules vary considerably, so it is important to check the conditions before assuming a benefit is tax-free.

A carefully chosen benefits package can sometimes provide employees with greater value than simply increasing gross salary. It can also help employers develop a more attractive overall remuneration package.

Before introducing or changing employee benefits, consider both the tax consequences and whether the benefit is something employees will actually value.