If an employer provides an employee or a director with anything other than pay, it will need to be reported as an expense or a benefit. The type of expense or benefit and the way they are provided can affect the tax and National Insurance Contributions (NICs) to be paid and the reporting requirement. Some expenses and benefits, although not liable to tax or NIC may still need to be reported. Confusion and errors can arise, and it is essential to consider all of the facts surrounding expenses paid or benefits provided and the importance of accurate record keeping.
Firstly, there is a difference between expenses and benefits.
What are expenses?
Expense payments are not the same as wages or salaries. Examples of expenses are rail fares, taxi fares, hotel accommodation etc. These are costs that are incurred or will incur from work-related tasks and have no financial gain to the employee.
No tax or National Insurance contributions are due on these expenses, and they don't have to be reported to the HMRC. However, accurate records of these must still be kept! More on this below. If you provide your employee with a set amount of cash for some common business expenses and meals, these are known as 'scale rate payments, which you can find out more about here.
What is a benefit?
A 'Benefit; is something that is advantageous and is given to employees as a reward or an incentive for doing the job. The employees receive this from their employer, and they are often referred to as 'Benefits in kind.' They are provided because of their employment and are therefore taxable. Examples of these include the use of a company car, a free holiday for exceeding targets or medical insurance. However, there are also a number of Non-taxable benefits – (provided certain conditions are met)
Non-taxable benefits
Mobile phone (This includes line rental and calls made)
Private use of a computer
Annual party or similar function, e.g. summer BBQ – up to £150 per head per annum is exempt. This figure per head includes all attendees, e.g. guests that attend with them.
Health screening – one assessment and one check-up per year – this could be eye tests, glasses or contact lenses for employees that are required to use a computer screen or other digital equipment in their role.
Trivial benefits in kind – If it costs you less than £50 to provide and isn't cash or voucher, which isn't a reward for their work performance, you don't have to pay tax on this benefit.
Approved mileage allowance payments - Keep a record of the date of travel, starting point, destination, miles covered, reasons for travel – you may pay up to 45p per mile up to 10,000 miles per annum, with any additional miles being paid at no more than 25p. If you pay your employees more than this amount, then the excess is taxed.
Taxable Benefits
How they are given to the employee will determine how they are treated and this often depends on whether there is a contract to provide the expense or benefit and who provides the contract.
Common items that are subject to tax or National Insurance contributions and must be reported to the HMRC are:
Cars and Vans which are available for private use – although the provision of a van may not be taxable if the private use is restricted predominantly to home to work journeys.
Private medical insurance – how you pay it will determine how you must pay tax.
Clothing – uniforms or protective clothing – Generally this includes the purchase, cleaning and repair costs for all clothing, but this will depend on a number of different circumstances. However, clothing that carries business branding is not treated as a taxable benefit, nor protective clothing such a hard hats or steel toe capped boots if needed in a construction environment for example.
Personal bills – e.g. gym membership, golf club membership, school fees, household expenses etc.
Record Keeping
Accurate record keeping is essential! It will help you to complete your end of year return for expenses and benefits and aid in working out Class 1A National Insurance contributions and help you avoid having to pay any penalty.
Record details of any expenses that you pay or benefits you provide to your employees. Make sure you keep up to date employee records of everything, even if there is no financial gain to the employee and keep it all accessible and in one place. You must be able to show that your end of year expenses and benefits returns are accurate. So, it is critical to record all the details, including dates, and keep all receipts and documents related to them.
If you haven't provided any expenses or benefits, then you still need to tell HMRC online that you haven't done this to make sure all records are up to date and accurate.
Need more help?
If you would like to find out more about taxable and non-taxable benefits, speak to one of our team today. Please call 01484 541 155 or email advice@sheards.co.uk
You can also refer to this handy guide on the HMRC website to help get you started.
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