And what providing employee benefits will cost you in tax! 

Happy Employees Standing Near Glass Windows

We tend to assume that our staff are motivated by money. And so increasing pay must be the recipe  for a happy, results-driven motivated team, mustn’t it? It’s a good recipe in theory, because who doesn’t want a pay rise?

But it’s missing a few ingredients… 

If motivation is solely money-driven, then why should your staff stick around? Surely, they’ll be off to another company offering higher pay the second they get the opportunity. A salary increase will get you so far. But it won’t help you to create greater teamwork or boost staff morale. It won’t make your staff boast about what a wonderful company you are to be a part of. It doesn’t necessarily equal loyalty.

When it comes to showing your staff that you value them, an employee benefit package can go a long way. It demonstrates that you care about their lives outside of work, that you’re invested in supporting them in their health and well-being, and that you’re committed to improving overall job satisfaction.

The evolving landscape of employee benefits 

Employee benefits are not just perks; they are a vital part of the overall compensation package that can significantly impact staff retention and job satisfaction. In 2024, the focus on wellbeing, mental health, and work-life balance has intensified. Benefits like flexible working hours, remote work options, mental health support, and comprehensive health insurance are increasingly valued by employees.

What are the tax implications of providing employee benefits?

If you’re thinking about providing employee benefits, you need to know about the tax involvement. Depending on what the benefit is, you may need to tell HMRC and pay tax and national insurance on it. Each employee on the receiving end may also have some tax to pay.

Let’s delve a little deeper…

Typical taxable benefits your company could provide: 

For a comprehensive list, here’s an A-Z list of all benefits.

Some expenses that aren’t usually taxable:
  • Paying for business travel – reimbursing genuine business costs is not a taxable benefit (unless you’re paying for the employee to commute).
  • Paying for business mileage – providing that the first 10,000 miles is at/below 45p per mile and any extra miles are at/below 25p per mile.
You’ll need to submit a P11D for employee benefits…

If your company is providing benefits to employees, you have a legal requirement to complete and submit a P11d form for each employee and a summary P11d(b) form to HMRC before 6th July each year.

The P11d form needs to be retained by the employee as they will need it to complete a self-assessment tax return. Any Class 1A National Insurance charged on benefits provided needs to be paid by 19th July.

What happens if you miss the deadline or submit the wrong information?

There are penalties for non-declaration to HMRC. The penalty for each undeclared P11d is initially £300 per document, plus £60 per day, per document until the form is filed. The P11d(b) summary penalty is £100 per employee, per part month it remains outstanding.

What is a Salary Sacrifice Agreement? 

A Salary Sacrifice agreement enables your employee to exchange a portion of their salary in return for a non-cash benefit. This is set up by changing the terms of the employee’s contract, though please note: you can’t reduce an employee’s cash earnings below the National Minimum Wage rates.

The impact on their tax and national insurance will depend on the pay and the non-cash benefits that make up the agreement. But basically, the employee will pay less, as their pay is lower. In addition, you will pay less Employer’s National Insurance contributions on the part they sacrifice.

How do you calculate the value of the benefit? 


  • The amount of the salary given up
  • The earnings charge under the normal benefit in kind rules

There are, however, some tax-free benefits you don’t need to calculate the value for in a salary sacrifice agreement that benefit both the employer and employee. These include:

  • Payments into pension schemes
  • Childcare vouchers and workplace nurseries
  • Bicycles (including cycle to work schemes)
Don’t let the Tax man ruin your Christmas Party

A PAYE Settlement Agreement (PSA) can be used to cover minor, irregular taxable benefits that it’s impractical to calculate and unnecessary for your employees to be burdened with. The most common use is for Christmas parties and annual functions that exceed the limit per head. It can also be used for other taxable items such as small gifts or relocation expenses that are in excess of the tax-free amount.

Join the thousands of businesses increasing staff retention by providing a range of employee benefits

Knowing your workforce is key to choosing which benefits will help you to attract and retain staff in your industry. Book a free 1-2-1 with us so that we can advise you on the right choice for your business (and help you with the legal bits!).
Email or call 01474 853 856

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