Your essential employee benefits checklist

Pharmacy accountant Umesh Modi gives his bitesize guide to paying tax on employee benefits

Employed pharmacists receive a salary and, possibly, certain benefits. These benefits – which can take the form of health insurance, for example – may be considered taxable by Her Majesty’s Revenue and Customs (HMRC).

As a result, an employer will need to calculate the total value of the benefits they offer you and deduct tax and national insurance contributions through Pay As You Earn (PAYE) on your salary.

But as an employee, which of the benefits you receive are taxable, and which are exempt? Here’s a handy checklist.

The taxable benefits checklist
Running a company car

If you are provided with a company car, then the tax benefit on the car is calculated through an emissions-based system.

This benefit is calculated as the car’s list price, minus the cash contribution paid by you or your employer (at a maximum of £5,000), multiplied by what’s known as the “appropriate percentage”.

This percentage depends on the car’s carbon dioxide emission level. You can find out more by referring to a HMRC document called the Company Car Tax rules 2005-06 to 2018-19, available at bit.ly/carbenefits.

Also, if your employer provides you with fuel for your personal use, then this is a benefit in kind and is also taxable.

Health insurance

Any insurance premium paid in the cause of employment is a taxable benefit.

For example, if you are an employee and you fall ill, and your employer pays the cost of private hospital bills for the treatment of an illness or injury not covered by your insurance policy, this would be considered taxable. 

Buying gift or meal vouchers

As a general rule, vouchers are taxable. For meal vouchers, only the first 15p – per voucher, per working day – is exempt from income tax. The value of vouchers above 15p is taxable. For more information, go to bit.ly/P11_D

Living expenses

These expenses are for the accommodation needed as part of your work. For job-related accommodation, the maximum taxable amount is 10% of net benefit – therefore 90% of net benefit is non-taxable.

The exempt benefits checklist
Loans of up to £10,000

If an employee loan does not go over £10,000 during the tax year, the employer has nothing to report in an annual tax return. 

Parking spaces at work

Costs for the provision of car or motorcycle parking spaces, or facilities for parking bicycles, at or near your place of work, are exempt.

Accommodation while working

You may be offered accommodation by your employer, for example while working away from home, or attending meetings or conferences. If the accommodation is job-related, then it will be an exempt benefit.

However, if it is not job-related, then it will be treated as a taxable benefit and taxed based on its annual value. 

Workplace nurseries

Places in nurseries or children’s play schemes on an employer’s premises, made available by your employer, or – if your employer runs the nursery jointly with others – on premises made available by one or more of those others, are exempt.

However, your employer must participate in managing and financing the provision of care. 

Employer-supported childcare

A small proportion of this is exempt – up to £55 per week for incomes up to £32,000, £28 per week for incomes between £32,001 and £150,000, and £25 per week for incomes higher than this.

If your employer contracts directly with a commercial nursery to provide qualifying childcare for a child for whom you have parental responsibility, the appropriate amount for a week is not taxed.

If the cost incurred by your employer is greater than the relevant amount for a week, the excess is taxable and you should include it on your tax return. 

You can find more information on directly contracted childcare, including how the appropriate amount is calculated, at bit.ly/childcare_benefits

Rewarding long service

Long service awards are exempt. But the award must be a non-cash award worth up to £1,000, given to an employee who has worked for at least 20 years, and who has received no similar award within the previous 10 years. 

Relocation costs

Some relocation costs – up to £8,000 – are exempt from tax and national insurance. These are called qualifying costs and include costs for a new employee who is moving to start a job, or an existing employee who is changing their place of work.

The costs should be paid before the end of the tax year after the one in which the move took place, and the employee’s new home should be reasonably close to their workplace. You may have to report any additional costs beyond £8,000 to HMRC, and pay tax and national insurance.
 
Umesh Modi is a chartered accountant, tax advisor and a partner at Silver Levene LLP. This article is based on the 2016-17 rates and legislation and is for illustrative guidance only. Readers are advised to seek detailed and specific professional advice before acting on
this content.

 

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