Employment benefits and expenses
We look at employment benefits and expenses, how they are valued and the related tax treatment. We also consider the position before 6 April 2016.
There is a common misconception that non-cash benefits are tax free. Indeed some are tax free, but others are not, so it is important to know the rules.
If you are an employee and your employer gives you non-cash benefits, they can be treated as additional income and you might have to pay tax on the benefits. Alternatively, if the benefit has been provided to you as part of a salary sacrifice scheme, you may pay tax on the salary given up rather than the value of the benefit. You can read about such arrangements at our paragraphs dealing with salary sacrifice.
If you are an employee and you are reimbursed for expenses, you may have to pay tax on the payments. But if they are expenses you incurred as part of your job, you may get tax relief on these expenses.
If you are an employee and incur expenses in connection with your employment that are not reimbursed by your employer, you may be able to claim tax relief on them, provided that you pay tax.
Normally, employees do not pay National Insurance contributions on benefits and expenses.
If you are an employee, your employer may provide you with non-cash benefits, for example a mobile phone or company car, in addition to your normal wages. These non-cash benefits are sometimes called benefits-in-kind or perks of the job.
You have to pay tax on some of these benefits, and there are usually special rules to work out the amount of the taxable benefit.
Some non-cash benefits are completely exempt from tax.
That depends on whether the benefit was provided on or after 6 April 2016 or before that.
Benefits provided on or after 6 April 2016
Generally, the taxable value of a benefit is the cash equivalent value. This is usually the amount it costs your employer to provide you with the benefit. You can read more about this on our page What are benefits-in-kind?.
You can read more about benefits provided before 6 April 2016 in the question below What was the £8,500 threshold?.
If you are an employee, you may be able to claim certain expenses as a deduction against your employment income, or your employer might reimburse you.
There are various rules governing the tax treatment of employment expenses.
You can find information on What if I incur expenses in relation to my job?, What travel expenses can I claim? and using your own car for business purposes in the next few pages. In addition we cover payroll giving.
The threshold has no relevance after 5 April 2016.
Up to 5 April 2016 how you were taxed on a non-cash benefit could depend on whether or not you were a ‘lower-paid employee’ – that is, whether you earned at a rate of £8,500 or more per year, or less than this amount. The rules were more generous for employees earning less than £8,500.
To work out if you earned at a rate of £8,500 or more per year, you had to include the value of any benefits you received. So your actual ‘cash’ salary may have been beneath the threshold, but the value of benefits-in-kind could mean you still failed the test of earning less than £8,500. Generally, in working out the £8,500 threshold, you added in benefits at their actual cost to the employer.
Benefits provided in tax years up to and including 2015/16
If you were a lower-paid employee, then generally the taxable benefit was the cash amount you were able to convert the benefit into. For example if you were given a printer that originally cost £350 and you were able to sell it second-hand for £50, the taxable benefit was £50.
However, you could not sell some benefits on the open market, for example, the use of a company car or van, a cheap loan or private medical insurance. In these cases, there was no taxable benefit.
Employees earning £8,500 and over
The vast majority of people were taxed according to the rules for employees who earned at a rate of £8,500 per year and over. You can find more information on these rules on our page ‘What are benefits-in-kind?’.
Example (say for the tax year 2015/16)
An employee had a salary of £7,000, a bonus of £1,000 and benefits valued at £1,400 (total £9,400). This employee was not an employee earning at a rate less than £8,500. In this instance all benefits and expense payments would be taxed in the normal way.
If you were a director of a company, you could not normally be treated as a lower-paid employee, however much you earned. There were exceptions for directors of charities and not-for-profit organisations who were not paid a salary, though.
There were certain circumstances where the taxable benefit was the same, no matter what your earnings. These included where you received:
- living accommodation;
- payment of a personal bill by your employer.
In these pages we cover the following topics:
- What are benefits-in-kind?
- What payments and benefits are non-taxable?
- What if I incur expenses in relation to my job?
- What travel expenses can I claim?
- What if I use my own car for business purposes?
- Payroll giving