How providing employee benefits can boost staff retention

Typical taxable benefits your company could provide: 

• A company car or van
• Private fuel costs
• Accommodation
• Golf memberships
• Private medical insurance or paying for treatment
• Employee loans with no interest (or interest rate charged below market rate)
• Payment of personal expenses, such as mobile phones, household bills, utility bills etc.
• Entertainment (business and non-business)
• Social functions and staff parties 
• Gifts to employees including Christmas gifts and vouchers

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? 

Calculate:

• 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.