Your employer may provide you with benefits or pay expenses or reimburse them, but these expenses payments and benefits are not always taxable. We explain which ones are non-taxable.
Benefits and expenses may be tax free for a number of reasons:
You do not have to pay tax or NIC on benefits and expenses covered by a PSA (nor by a dispensation for tax years up to and including 2015/16), and if you complete a tax return, you do not need to include them there.
You do not have to pay tax on benefits and expenses covered by concessions or exemptions and there is no need to include them on a tax return.
It used to be very popular for employers to offer employees the chance to salary sacrifice some of their taxable pay for non-taxable benefits. However, the rules now only allow this in respect of certain approved arrangements such as pension contributions and childcare vouchers.
⚠️ The following categories of expenditure are not normally taxable on the employee.
Since 6 April 2016, there is an exemption for qualifying business expenses paid or reimbursed by employers. Your employer need not report these to HMRC. Before that date, employers who did not have a dispensation (see above) had to report these to HMRC and then you had to make a claim that these were qualifying business expenses.
Accommodation, supplies and services – for example, ordinary office accommodation, and equipment, phones, typists, messengers, stationery – provided to you on your employer’s business premises and used by you in performing your duties, provided that if there is any occasional private use of the items by you it is not significant.
Employers can provide disabled employees with some equipment to help them to overcome their disability and enable them to work.
Supplies and services – for example, work equipment to use at home, stationery and consumables – provided to you to perform your duties, provided that if there is an occasional private use of the items by you it is not significant.
Employers can provide disabled employees with some equipment to help them to overcome their disability and enable them to work.
Free or subsidised meals, or a ticket or token used to obtain such meals, if the following conditions are met:
This exemption does not apply, in the case of an hotel, catering or similar business, to free or subsidised meals provided for you in a restaurant or dining room at a time when meals are being served to the public, unless part of it is designated as being for the use of staff only and you take your meals in that part.
From 6 April 2016, broadly any benefit costing less than £50 will not be a benefit-in-kind provided that:
Previously, there was no monetary limit below which a benefit was inevitably to be regarded as trivial – it was a question of common sense and judgement as to the type and the amount of benefits that was trivial.
There is no limit to the number of trivial benefits that an employee can receive in a year, except where the individual is a director in a close company. In this case, the total value of trivial benefits cannot exceed an annual cap of £300.
Employer contributions to an employee’s pension scheme are not taxable on the employee provided they are within certain limits. You can read about the annual allowance and lifetime allowance on GOV.UK. Therefore if an employer pays into either the employee’s occupational pension scheme or into the employee’s personal pension scheme, no taxable benefit will normally arise.
The cost of necessary medical treatment abroad paid for by your employer, or paid by you and reimbursed to you by your employer, where you fall ill or suffer injury while away from the United Kingdom in the performance of your duties. The cost of providing insurance for you against the cost of such treatment is also non-taxable.
Expenses incurred in providing you with a maximum of one health screening assessment and one medical check-up in any year.
‘Health screening assessment’ means an assessment to identify employees who might be at particular risk of ill-health.
‘Medical check-up’ means a physical examination of the employee by a health professional for, and only for, determining the employee’s state of health.
This exemption does not cover medical treatment. From 1 January 2015 your employer is able to pay up to £500 of medical treatment for you without that being a taxable benefit for you provided that certain conditions are satisfied:
Eye tests and corrective glasses are not taxable where an employee uses a visual display unit (VDU), and the provision of a test and glasses is required by Health and Safety regulations.
The cost of living accommodation, also known as job-related accommodation, provided for you if:
Note: (a) If you are a company director and the company, or an associated company, provides you with accommodation, you can only seek exemption in these circumstances if:
If your living accommodation is exempt, any council tax or water rates your employer pays on your behalf, or reimburses to you, are also exempt.
Other expenses relating to the accommodation, such as the cost of heating and lighting are taxable if they are paid by your employer, but the taxable benefit is limited to 10% of your taxable earnings.
These are payments that your employer might make for personal expenditure, up to certain limits, when you stay away from home for at least one night during a business journey, for example, buying newspapers, laundry, phoning home. The maximum amounts that may be paid without any tax consequences are:
Reasonable expenses reimbursed to you, or paid on your behalf, if, because of dislocation of public transport by strikes or other industrial action, you:
Assistance with the cost of travelling between home and work, or to and from a place where work-related training is provided, including the reimbursement of travel expenses, given to people with a substantial and long term disability.
Costs met by your employer, if you are about to leave your employment, or have left within the previous year, to enable you to attend certain courses of retraining intended to help you get another job.
If you have not left by the time you start the course, you must leave within two years of finishing it for the exemption to apply. The exemption is withdrawn if you are re-employed by the same employer in the two years following the end of the course.
The exemption is only available if you have been employed by your employer for at least two years up to the time you begin the course, or at the time the employment ceased.
The opportunity to attend courses must have been given to all employees in a similar position.
Exempt expenses are:
This exemption covers the costs borne by your employer of work-related training within the whole range of practical or theoretical skills and competencies you are reasonably likely to need in your present or likely future jobs with your employer. The exemption extends to:
All the ways in which training can be delivered are covered, including full-time and part-time training, internal training courses run by your employer, courses that are run externally or by a third party, and courses that comprise any mixture of these.
The tax exemption also covers:
Training, or training-related travel and subsistence, which is provided as entertainment, recreation, reward or an inducement, remains taxable.
Any asset provided to you or for your use is also taxable unless the asset is provided or used purely for training, or for training coupled only with use in the performance of the duties of your office or employment.
Long service awards made to directors and employees as testimonials to mark long service where the service is not less than 20 years and no similar award has been made to the same employee within the previous 10 years.
These have to be:
The cost of the award must not exceed £50 for each year of service.
Awards made to you under a suggestion scheme where the following conditions are met:
The exemption applies to two types of awards for suggestions:
a) Encouragement awards
An encouragement award is one that is made for a suggestion that has some special merit or reflects praiseworthy effort on the part of the person making the suggestion. The permitted maximum for an encouragement award is £25. If the encouragement award exceeds £25 the excess over £25 is taxable.
b) Financial benefit awards
There are additional conditions applying to financial awards:
This might apply if a business provides entertainment to its customer’s employees. Providing goodwill entertainment for an employee, or for a member of the employee’s family or household, provided that:
The provision of car or motorcycle parking space or facilities for parking bicycles, at or near the employee’s place of work.
The costs of providing the electricity, including the cost of providing a charging point at the employee’s home for a company car or van. The cost of providing the electricity is only free from tax if the employer pays for all the electricity directly. If, instead, the employer reimburses the employee and that includes the cost for any private mileage, there will be a charge to tax and NIC on the whole amounts of the reimbursement although the employee will be able to claim tax relief for the business mileage.
This might apply if a business makes small gifts to its customer’s employees. Certain gifts from third parties are not taxable if all these conditions are satisfied:
Some other gifts are not taxable:
The cost of transport, for up to 60 journeys in each tax year, your employer provides to take you home if:
The benefit of travel between home and work in a bus or minibus that your employer provides may be non-taxable. The following conditions must be met:
Or if your employer pays a subsidy to a public bus service so that you travel at a reduced or no cost on that route, provided that the service is available to all employees.
This includes annual parties or alternative functions of a similar nature, such as a Christmas dinner or a summer party, which are open to staff generally and which cost no more than £150 a head in total to provide. Recognising the difficulty of bringing employees together safely in the midst of the coronavirus pandemic, HMRC have confirmed that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties
The exemption applies to sports facilities generally available to all employees and members of their families and households.
This does not apply to facilities:
Certain elements of travelling and subsistence allowances paid under Working Rule Agreements to some employees in the construction and allied industries are paid free of tax under an agreement with HMRC. Any allowances or part of allowances covered by this agreement will not be shown on form P11D and should not be included on your tax return.
Welfare counselling made available to all employees generally on similar terms is exempt from tax. For this purpose, welfare counselling does not include:
There is no charge to tax on one mobile phone provided to you, or any line rental or the cost of any private calls for that phone paid for by your employer. The contract needs to be in your employer’s name.
One mobile phone may consist of two connections, for example, two SIM cards, to the same number, one in a handset and another in a hands-free phone in a car. However, two connections to two different numbers represent two mobile phones.
A mobile phone provided to a member of your family or household is taxable in all circumstances, unless the family or household member is provided with the phone as an employee in their own right.
If an employer provides a mobile phone to you solely for business use, and private use is not significant, there is no charge to tax. Consequently, it is possible for an employer to provide two, or more, mobile phones without creating a tax charge, if one or more is provided solely for business use – and private use is not significant – and only one is provided for private use.
But if two mobile phones are provided for private use, or for mixed private and business use, only one is exempt. It is up to you and your employer to decide which one is exempt and which one is chargeable as a benefit.
Smartphones fall within the meaning of mobile phones.
HMRC accept that the provision of one such device to an employee can be exempt from a benefit in kind charge even where there is private use. This exemption does not extend to other devices such as iPads, PDAs and tablets.
If your employer lends or hires bicycles or cycling safety equipment to their employees, the exemption applies if:
Other use of the cycle, for instance pleasure use or use by members of your family will not disqualify the exemption provided that the other use is not the main use of the bicycle.
You are not expected to keep detailed records of time spent cycling or miles travelled for the purpose of this exemption.
The exemption also covers the provision of a voucher for hiring bicycles and equipment.
Transfer of ownership of the bicycle from the employer to you
If ownership of the bicycle is transferred to you after a period of use during which the exemption applied, the transfer is a taxable benefit and the cost of that benefit is the market value of the bicycle at the date of transfer.
The exemption from tax and NIC for loaned or hired cycles only applies where there is no transfer of the property in the cycle or equipment in question. This means that the exemption ceases to apply if ownership is transferred to you.
Similarly, the exemption does not apply if any agreement builds in from the outset an automatic transfer of ownership to you at the end of the hire period.
Using your own bicycle for work
Some employees are paid an allowance for using their own bicycle for business travel. Their employer might pay them per mile to do so, for example your employer might pay you 10p for every business mile that you cycle.
You can receive up to a maximum amount per mile without having to pay any tax. This is the Approved Mileage Allowance Payment (AMAP). The AMAP rate for using your own bicycle is 20p for each business mile. If your employer pays you 30p per mile, say, you have to pay tax and NIC on the extra 10p a mile you get above the approved rate.
If you get paid less than the approved rate then you can claim tax relief on the difference, assuming that your income is high enough that you pay tax.
Your employer can meet your removal or relocation costs, up to a maximum of £8,000 per move, if certain conditions are met.
The conditions include:
If your employer sells you goods, for example, unsold bakery products, at a discount, provided the amount you pay is at least the cost incurred by your employer in making the goods, there is no taxable benefit.
If your employer pays you ‘mileage’ when you use your own car for business purposes, provided the amount they pay you is below certain limits there is no taxable benefit.
There is a list of Extra-Statutory Concessions in force on GOV.UK.
You can read more about PAYE settlement agreements on GOV.UK.
GOV.UK also contains an A to Z list of expenses and benefits, which explains the tax and NIC treatment. Although this is aimed at employers, it will also be useful to employees.
There is a quick guide to employment benefits aimed at employees on GOV.UK.
HMRC’s technical information on employment benefits can be found in their Employment Income Manual starting at page EIM21600.