Mobile telephones

What is the exemption for mobile telephones?

No tax or NI is payable where an employer provides an employee with one mobile telephone for personal use. While the exemption does not apply to mobile phones provided to a member of an employee’s family or friend, they can allow use of the phone to whoever they wish without losing the exemption.

The exemption doesn’t apply unless the contract for the phone is between the employer and the mobile phone company; the employee must not own the phone or be liable for the contractual payments.

Can the employer just pay the bill on the employee’s behalf?

If the employer pay an employee’s mobile phone bill, i.e. direct to the phone company, the amount paid is taxable as a benefit in kind and liable to Class 1A NI, and must be declared on the P11D. Equally, if they reimburse an employee their mobile phone costs, the amount reimbursed is taxable, not as a benefit but as pay on which PAYE tax and Class 1 NI applies.

The employer can reimburse or pay an employee’s phone charges tax and NI free, where the charge can specifically be identified as being incurred wholly and exclusively in the course of the employee carrying out the duties of their job.

Does the exemption cover smartphones?

In 2011 HMRC changed its policy with regard to smartphones. It now accepts that the exemption for mobile phones applies equally to phones that include other features such as music, video players and internet access.

 

Overseas accommodation and subsistence allowances

When can fixed rate tax and NI-free allowances for foreign travel be paid?

Usually, where an employee travels overseas on business HMRC expects the employer to keep detailed records and documentary evidence of the expenses incurred. These are tax deductible for both the employee and the business.

However, HMRC operates concessions that allow the employer to pay fairly generous tax-free expenses without receipts. This can be particularly useful as there will be no need to obtain receipts for out-of-pocket expenses, such as taxi and bus fares, refreshments, etc.

The allowances are shown in HMRC’s regularly updated list of worldwide subsistence rates, sometimes called overseas benchmark subsistence rates. The list is around 100 pages and covers most countries an employee is likely to visit on business. This can be viewed or downloaded from https://tinyurl.com/yxdbb5x9.

Where the allowance is not fully spent by the employee it does affect its tax and NI-free status. This means it can be used for a salary sacrifice arrangement to increase the employee’s net income and reduce the employment cost.

Example

Acom Ltd sends two of its sales force to a trade fair in Geneva; they arrive on Monday midday and catch a flight home early Thursday evening. Acom leaves it up to the employees to pay for everything except the flight which is settled direct with the airline. It pays each employee an amount based on HMRC’s latest overseas travel scale rates, say £1,160, to cover all food, accommodation and local travel costs. The employees manage their costs well and stay in a modest hotel. They actually only pay out £750 each meaning they walk away with £410 tax and NI free.

 

Relocation costs

What is covered by the exemption?

The tax and NI exemption is limited to expenses and benefits the employer can provide in relation to a job-related move for an employee or prospective employee. The exemption applies where conditions are met.

Where the employer pays for an employee’s non-qualifying removal costs, they are taxable and liable to Class 1A NI as a benefit in kind and must be reported on a Form P11D.

Is there a monetary limit on the provision of tax-free relocation costs?

Yes, the exemption is limited to £8,000 per move.

The costs of moving house can be very high and if employers meet all the costs of a job-related move, it’s likely the £8,000 limit will be exceeded. For example, stamp duty land tax (SDLT), or regional equivalent, payable on the purchase of a £300,000 property would exceed the limit (SDLT is 3% of £300,000 = £9,000). Only the excess over £8,000 counts as a taxable benefit. If employers don’t wish the employee to pay the tax personally they can settle it using a PAYE settlement agreement.

What type of costs fall within the scope of the exemption?

The exemption covers benefits and expenses falling within the following categories:

• acquisition benefits and expenses
• abortive acquisition benefits and expenses
• disposal benefits and expenses
• transporting belongings
• travelling and subsistence
• replacement of some non-transferable domestic goods, e.g. built-in refrigerators.

What are acquisition benefits and expenses?

Acquisition benefits and expenses are those incurred in relation to the acquisition of the employee’s new home.

• Acquisition benefits can include legal services connected with the purchase of the new home, the services of a property finding company or the connection of any utility service.
• Acquisition expenses include legal costs, land registry fees, SDLT and similar expenses.

What are abortive acquisition benefits and expenses?

These are expenses and benefits in relation to an intended acquisition that does not take place, either for reasons outside the control of the person acquiring the interest, or because that person reasonably decides not to go ahead. For example, an abortive acquisition may arise because the person selling a property decides to take it off the market or because the would-be purchaser pulls out because of an adverse survey report.

What are disposal benefits and expenses?

These are certain costs associated with the actual or intended disposal of the old home. Examples include legal fees, estate agent’s fees, costs of disconnecting utilities etc. Disposal benefits don’t have to relate to the sale of a property and may also be incurred where a property is rented in relation to giving up a tenancy.

The exemption also covers costs of an intended disposal. Therefore, costs of a house sale that fell through would be within the scope of the exemption.

What about the costs of transporting belongings?

The exemption also covers the costs associated with transporting an employee’s belongings from their former residence to the new one.

Employers can take out insurance to cover the potential cost of damage to the employee’s possessions during transportation and this will be covered by the exemption.

Transport costs can cover a broad range of expenses, for example:

• packing and unpacking belongings
• temporarily storing belongings where there is not a direct move from the former residence to the new one
• detaching domestic fittings from the former residence where they are to be taken to the new one, and
• attaching domestic fittings to the new property and adapting them, where they are brought from the old residence to the new one.

What travelling and subsistence expenses fall within the exemption?

The employer can meet the following types of travel and subsistence cost within the terms of the exemption:

• subsistence (meals and overnight accommodation) and facilities for travel provided for the employee and members of the employee’s family or household for temporary visits to the new area for purposes connected with the change of residence
• any other subsistence provided for the employee
• facilities provided for the employee for travel between their former residence and the place where their new duties are normally performed, or the new place where their employment duties are normally performed or the employee’s temporary living accommodation
• where the relocation results in a change in the employee’s duties, facilities provided for them to travel before the change between their new residence and the place where they currently work or their temporary living accommodation
• facilities provided for the employee and members of their family or household for travel from the employee’s former residence to the new one in connection with the change of residence
• subsistence provided for a relevant child while the child stays in education-linked living accommodation; and
• the cost of travel for a child between education-linked living accommodation and the employee’s (the child’s parents or guardians) accommodation to allow the child to stay at the old school to finish GCSEs or A-levels.

The exemption doesn’t apply to travel and subsistence where it’s in the form of providing the employee with a company car or van that’s available to them for private journeys.

Which domestic goods may be replaced within the terms of the exemption?

A house move often necessitates the replacement of domestic goods. The exemption covers those that were used at the old residence but which are now unsuitable and also expenses incurred on the purchase of such replacement domestic goods, e.g. carpets and curtains that don’t fit the new home.

Does the exemption apply to all employee moves?

The exemption only applies if the move satisfies the following conditions:

Condition A

The change of residence results from:

• the employee becoming employed
• an alteration of the duties of the employment; or
• a change in the place where the employee is normally to perform those duties.

Condition B

The change of residence is made wholly or mainly to allow the employee to reside within a reasonable daily travelling distance of the place where the employee normally performs or is normally to perform the duties of the employment after the employment change.

Condition C

The employee’s former residence is not within a reasonable daily travelling distance of that place. There’s no firm rule as to what constitutes a reasonable distance to commute to work, but it's likely that where a commute takes much more than 90 minutes each way it ought to qualify.

Is there a time limit in which the move must take place and the expenses incurred?

Yes, the expenses and benefits relating to the move must be incurred by the last day of the tax year following that in which the move took place.

HMRC can extend the limit. For example, it may agree to an extension if, due to the economic climate, the employee is unable to sell their old house within the allotted time.

What’s the position in relation to bridging loans?

The exemption extends to bridging loans in certain circumstances, For example, interest on a loan taken out to cover costs of acquiring a new home before the disposal proceeds from the old home were available would be covered.

 

Recreational and sporting facilities

What is covered?

Providing that the terms of the exemption are met, employers can make available sporting and recreational facilities to employees and members of their families without a tax bill arising.

What are the conditions for exemption?

For the exemption to apply, conditions A to C below must be met:

Condition A

The facilities are available generally to the employees of the employer.

Condition B

The facilities are not available to members of the public generally.

Condition C

The facilities are used wholly or mainly by persons whose right to use them is employment-related (whether or not by reference to the same employer).

The right to use the facilities is employment-related if it’s because the person is an employee, or former employee, or a member or former member of the family or household of an employee, or former employee, and the facilities exist for the benefit of current employees generally.

Is membership of a local gym covered by the exemption?

The exemption doesn’t apply to facilities that are generally available to members of the public, e.g. local recreation centres, gyms, sports centres etc. But it does apply to in-house facilities, such as a gym or swimming pool provided for use by employees and not the general public.

Although not covered by the tax and NI exemption, a corporate membership can still be a good benefit for an employee, as generally the cost per head is much cheaper than individual membership. Therefore, employees can still save money if the employer takes out a corporate membership and the employee reimburses a proportionate share of the cost.

What other exclusions from the exemption are there?

The tax and NI exemption doesn’t apply to the use of mechanically-propelled vehicles, e.g. boats or go-karts. Neither does it apply to the use of holiday or other overnight accommodation.

The exemption also doesn’t apply to facilities provided on domestic premises. Domestic premises means premises used wholly or mainly as a private dwelling, or land or other premises belonging to or used with the dwelling, e.g. a detached garage.

 

Suggestion scheme awards

What exemption applies to suggestion schemes?

A tax exemption is available in respect of suggestion scheme payments that meet certain conditions. The exemption applies where the scheme is open to employees generally or to a particular group of employees and provided that conditions A to C below are met:

Condition A

The suggestion relates to activities carried on by the employer.

Condition B

The suggestion is made by an employee who could not be expected to make it as part of their normal job, taking into account their experience.

Condition C

The suggestion is not made at a meeting for the purpose of promoting suggestions.

What type of awards can employers make?

There are two types of award that may be made under a suggestion scheme - encouragement and financial benefit.

An encouragement award is one that’s made for a suggestion with intrinsic merit or showing special effort. A financial benefit award is for a suggestion relating to an improvement in efficiency or effectiveness that the employer has decided to adopt and reasonably expects will result in financial benefit.

Is there a limit?

The amount that can be awarded tax free is subject to a monetary cap known as the permitted maximum. As far as an encouragement award is concerned, the permitted maximum is just £25 per suggestion.

The rules for financial benefit awards are slightly more complicated. If only one award is made for the suggestion, the permitted maximum is the “suggestion maximum”.

The suggestion maximum for a financial benefit award is the smaller of the “financial benefit share” and £5,000. The financial benefit share is the greater of:

• half the financial benefit reasonably expected to result from the adoption of the suggestion for the first year after its adoption; and
• one-tenth of the financial benefit expected to result from its adoption for the first five years after its adoption.

What happens if employers make more than one financial benefit award?

If more than one award is made on the same occasion to different people, the suggestion maximum must be apportioned between those people.

Example

A company operates a suggestion scheme award and rewards employees for money-saving ideas. Two employees put forward a suggestion that saves the company £12,000 in the first year following implementation and £2,000 annually thereafter.

The financial benefit share is the greater of:

• £6,000 (50% of the first-year savings of £12,000); and
• £2,000 (being one-tenth of the saving over the first five years of £20,000 (£12,000 + £2,000 + £2,000 + £2,000 + £2,000)

The permitted maximum that can be paid to the employees is therefore the lower of:

• £6,000; and
• £5,000

i.e. £5,000.

As the award is made to two employees, the maximum that can be made to each tax free is £2,500.

What happens if the awards are spread over several years?

Where a financial benefit award for the same suggestion is spread over several occasions, the permitted maximum applies to the total award. Any unused balance is carried forward and future awards for that suggestion can be made tax free up to the unused portion of the permitted maximum. Assuming the permitted maximum for an award is £5,000 and the award is made annually over a five-year period, if the award in year one is £3,000, the maximum award that can be made tax free in year two is £2,000 (£5,000 - £3,000) and so on.

Is there a limit to the number of tax-free encouragement awards that employers can make?

No, but each award is subject to a tax-free limit of £25.

 

Transport home for employees who work late

When could this exemption be used?

Sometimes employers may pay an employee for the cost of getting home by taxi or other transport where they have worked late, say, to meet a deadline. This will be a tax and NI-free benefit where conditions are met.

A tax and NI exemption applies where the:

• transport is for a journey from the employee’s workplace to their home
• late working conditions or car-sharing failure conditions are met; and
• number of previous occasions in the tax year on which the provision of transport or the payment or reimbursement of expenses within the terms of this exemption has occurred is fewer than 60.

If these conditions are not met, the employee will be taxed on the cost of the transport home.

What are the late working conditions?

The late working conditions are that:

• the journey is made on an occasion when the employee is required to work later than usual and until at least 9.00pm
• such occasions occur irregularly
• by the time that the employee ceases work, either public transport has ceased to be available for the journey or it would not be reasonable to expect the employee to use it; and
• the transport is provided by taxi or similar private road transport.

Example

In preparation for a major pitch, Jake is required to stay at work until 10.30pm. His employer provides a taxi home. This is the first occasion in the tax year when such as taxi has been provided. The conditions for exemption are met and no tax charge arises.

If the employee finishes work shortly before 9.00pm, it may be worthwhile working until 9.00pm and then providing a taxi to take advantage of the exemption.

What are the car-sharing failure conditions?

The car-sharing failure conditions are as follows:

• the employee regularly travels to and from work in a car with one or more work colleagues under car sharing arrangements; and
• the journey is made on an occasion when the employee is unable to use the car because of unforeseen and exceptional circumstances.

Example

Evie and Isobel share a car to work. On one occasion, Evie has to leave early, as she is ill. Their employer provides a taxi home for Isobel. The car-sharing failure conditions are met so the taxi can be provided tax free.

If the employer provides a taxi home and the conditions for exemption are not met, to maintain the goodwill gesture the employer could settle the associated tax liability by means of a PAYE settlement agreement.

 

Pensions advice

What is the employer-provided pensions advice exemption?

For many years HMRC has allowed employers to pay for pensions advice for their employees, including directors, without it counting as a taxable benefit in kind. The exemption amount increased to £500 from 6 April 2017 (previously £150).

When can the exemption apply?

The exemption can apply:

• where employers provide “relevant pensions advice” and pay for or reimburse the cost of advice incurred by or on behalf of an employee, or a former or prospective employee
• to more than one employment, i.e. multiple exemptions of £500 each are therefore possible if an employee has two or more jobs with different employers.

Relevant pensions advice includes general advice relating to the use of pension funds as well as that relating to a specific employee’s pensions savings.

What are the conditions?

For the exemption to apply, one of two conditions must be met.

Condition A. The offer of pensions advice must be open to all employees generally.

Condition B. employers offer the advice to specific groups of employees on grounds of age or ill health. Ill health has to be sufficiently bad to potentially prevent an employee from working in the same capacity as they did before their illness, probably permanently. The age requirement allows employers to limit advice to employees who are 55 or older, or have reached the retirement age specified within the pension scheme rules.

If the employer is a small business it might be that most of those who meet the age requirement are the senior staff or directors. In that case they could limit pensions advice to that group and the tax exemption will apply.

The exemption is allowed where employers offer to pay for pensions advice for employees at one or more specific locations. For example, if the business operates different branches employers can limit advice to say, one branch and the exemption will apply as long as the offer is for all the employees at that branch. There’s also room for singling out groups of employees where condition B is met.

 

Training

Is employer-paid-for training exempt from tax?

Employers can pay for work-related training and attainment of qualifications in connection with an employee’s current or future role with them without it being treated as a taxable benefit.

What type of training counts as work-related?

This means a training course or other activity that is designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities that:

• are likely to prove useful to the employee when performing the duties of the employment or in a related employment; or
• will qualify or better qualify the employee to perform those duties or to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

The training must be relevant to the employee’s current or related employment. A related employment is one with the same employer, or another employer, or with a person connected with their employer that the employee will or is likely to hold in future. This means that training costs met in advance of an employee taking up a corresponding role with the same employer are covered by the exemption.

Do leadership or team building courses come within the exemption?

The definition of work-related training is quite wide and can cover both practical and theoretical skills as long as these are relevant to the employment. In a job where leadership and team skills are needed, activities such as Outward Bound, Raleigh International and Prince’s Trust can qualify.

The provision of first aid and safety courses also falls within the scope of the exemption.

Employers can arrange an activity normally associated with leisure to come within the exemption, e.g. paintballing, as long as it’s organised to promote leadership or team building. However, courses that are purely for leisure or recreational purposes, such as foreign language classes for an employee who has no need for language skills in their current or future job , are not covered by the exemption.

Can employers reimburse training costs incurred by a potential employee?

The work-related training exemption does not apply to costs incurred before their employment, or an employer connected with the current employer, e.g. a company in the same group, started. This means that any training the employee undertakes on their own initiative at a time when there’s no specific employment in mind would not count as work-related training.

However, HMRC accepts that there are cases where the link between the training and subsequent employment is so strong that the conditions for the exemption are met. This may be the case where an employee accepts a job and agrees to start in the near future and the employer arranges and pays for the necessary training prior to the start of the employment.

To qualify for exemption, do employers need to send employees on external training courses?

It doesn’t matter how the training is delivered. Self-tuition packages, computer-based training, distance learning, work experience or work placement and informal teach-ins are all acceptable, as are more formal classroom-based methods. The training could be delivered internally or externally, or on a part or full-time basis. This is especially handy in the wake of the coronavirus pandemic, which saw most training shift online - at least temporarily.

What about related costs of training?

Other incidental costs relating to training won’t trigger a tax or NI bill. The exemption covers the following:

• expenses incurred in connection with an examination or other assessment of what the employee has gained from the training; and
• the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training, examination or other assessment.

Are travel, subsistence and other costs covered by the exemption?

Yes, any additional cost which is incurred as a result of the training is exempt. For example, the cost of childcare incurred solely so that an employee can attend training. If travel expenses meet conditions A and B below they qualify for the exemption.

Condition A

On the assumptions listed below, tax relief for mileage allowance payments would be due.

Condition B

On the assumptions listed below, the expenses of travel and subsistence would be tax deductible; essentially this applies if the employee is travelling on business.

Assumptions. The assumptions on which the conditions are based are that the employee:

• undertook the training as one of the duties of the employment; and
• incurred and paid the expense.

 

Workplace parking

Is parking exempt from tax?

Parking, particularly in town and city centres, can be very expensive. So the provision of a parking space at or near the workplace can be a very valuable tax and NI-free benefit.

Employees, or their families and friends, can use the parking space in the evenings and at weekends without triggering a tax or NI charge. If the parking space is in the town centre or near a railway station, this can be especially beneficial.

What counts as workplace parking?

Workplace parking is any parking space for a car, van or motorcycle or facilities for parking a bicycle at or near the employee’s workplace.

HMRC allows the exemption in respect of parking facilities that are within a reasonable distance of the employee’s place of work. It’s not necessary to provide on-site parking at the workplace or at the nearest car park. HMRC can’t refuse to allow the exemption just because there’s a nearer car park.

What happens if the local council levy a charge for workplace parking?

If the local authority levies a charge on the employer for workplace parking in accordance with the Transport Act 2000, the workplace parking exemption means that no tax charge arises as a result, even though the employer is meeting a cost that would typically have to be paid by the employee.

 

Electric vehicle charging

What is the tax position if employers provide free electric charging for employees’ vehicles?

An exemption from tax and NI applies where employers provide employees with facilities and electricity for charging their electric cars and van.

What terms and conditions apply to the exemption?

The exemption covers the cost of electricity and charging facilities provided for employees, but it doesn’t apply to the reimbursement or payment of an employee’s personal expenditure incurred on charging their car away from the employer's premises.

The employee need not own the vehicle for the exemption to apply but they must be either the driver or a passenger at the time.

The exemption applies whether or not the employee uses the vehicle for business journeys.

Does the charging have to take place on the firm’s premises?

No, it can take place at or near the workplace. This means within a reasonable distance of the premises at a place which is under the employer's control. The place must be available to other employees to charge their vehicles.

While the exemption doesn’t apply where employers pay for vehicle charging away from the employee’s workplace, to the extent they then use the vehicle for business travel the employer can pay a tax-free mileage allowance of 4p per mile.

 

Trivial benefits

What are trivial benefits?

Since 6 April 2016 a benefit provided to employees that costs an employer no more than £50 is exempt from tax and NI. Subject to the conditions explained below, the tax and NI exemption can apply to as many perks as employers want to give employees. If a perk is already exempt, for example, the firm’s Christmas party, that exemption takes precedence over the trivial benefits exemption.

What are the conditions?

Aside from the £50 limit, the perk must not be:

• in cash or a voucher convertible into cash. A gift voucher, for example a voucher to spend in a shop is fine because it can only be exchanged for goods or services and not cash
• a reward for an employee doing their job
• provided as a contractual right of the employment.

The exemption can be used unlimited times as long as the conditions are met and the financial limit met.

Directors are entitled to the exemption as well as employees, but are subject to a further financial limit.

What is the special limit for directors?

As an anti-avoidance measure there’s an additional monetary cap for trivial benefits provided to directors of close companies and their families. As well as the £50 per benefit, the total cost to the company must not exceed £300 per tax year.

Broadly, a close company is one controlled by five or fewer individuals.