What are the tax implications in providing employee benefits?

Employee benefits and staff perks are an important aspect of compensation packages with many organisations now offering additional perks and incentives to attract and retain talented employees.

While these benefits provide value to employees, it’s essential to understand any tax implications associated with them. In the UK, the tax treatment of employee benefits varies depending on the type of benefit provided.

Benefits in kind (BIK) can form part of an employee’s overall rewards package.

A ‘benefit in kind’ can be anything beneficial other than actual money (wages, bonus etc). Typical benefits in kind include:

  • Workplace pension
  • Death-in-service benefit
  • Private medical insurance
  • Share options
  • Childcare vouchers
  • Company car
  • Cycle-to-work schemes
  • Voucher and discount schemes
  • Subsidised or free meals
  • Gym memberships
  • Employee counselling services

As benefits in kind have a monetary value, many of them are subject to tax.

Some may also result in a tax charge on the employee. It’s therefore important for you to know which benefits in kind are taxable and which are tax-free.

Trivial benefits in kind are exempt from P11D declaration.

A benefit is considered trivial and you don’t have to pay tax on a benefit for your employee if all of the following apply:

  • it cost you £50 or less to provide, up to £300 per year
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

You have to pay tax on any benefits that don’t meet all these criteria.

If you’re not sure whether a benefit counts as a trivial benefit call the HMRC employer helpline.

Providing your team additional trivial benefits have the following advantages:

  • Trivial benefits cannot be included in employee contracts so you can provide your team with trivial benefits as you see fit and under no obligation to do so. (However taking away benefits will certainly affect morale – but that’s another blog!)
  • No lengthy P11D declarations for your accounts team or changes to individual tax codes as trivial benefits are not declarable
  • Each employee can receive trivial benefits worth up to £300 per year, so long as each individual gift or benefit does not cost more than £50

Employee Assistance Programmes (EAPs) include a range of facilities and treatment that can support employees both personally and professionally throughout the course of their employment.

However, elements of EAPs can fall outside the scope of exemption for the HMRC and consequently all the component parts of the programme need to be covered by the exemption in order for it to be exempt from tax and NICs.

The HMRC states that:

“It follows that if there are some services provided under an EAP which clearly satisfy the terms of the exemption, and others that clearly do not, it makes sense for the two sets of services to be separated – if possible into entirely separate schemes – so that one is exempt from charge, whilst the other represents a benefit to the employees who avail themselves of the facility.

However, if it is not possible to separate the services in this way, common sense should be applied where the welfare counselling provided by an employer consists substantially of facilities that satisfy the terms of the exemption but also to a not significant proportion of the services provided which do not satisfy the exemption. This applies particularly on occasions where it is difficult to determine where to draw the line between counselling which falls within the exemption and counselling which is outside of the exemption.”

The HMRC has agreed with the UK Employee Assistance Professionals Association (EAPA) that legal information provided within the context of welfare counselling for employees will not prevent the exemption from applying as long as it remains within agreed guidelines. The EAPA has summarised these guidelines for its members here.

As an employer, you do not have any tax, National Insurance or reporting obligations if you provide welfare counselling services for your employees.

The counselling service must be:

  • for welfare issues, such as bereavement, ill health or stress, problems at work, sexual abuse or personal relationship difficulties
  • available to all your employees

The counselling service cannot offer:

  • tax advice
  • legal advice
  • financial advice on any matter other than debt problems
  • advice relating to leisure or recreation
  • medical treatment (other than counselling services such as Cognitive Behavioural Therapy or interpersonal therapy)

Employee benefits can play a vital role in attracting and retaining talent in the UK job market. While they offer valuable perks to employees, it’s crucial to understand the tax implications associated with these benefits. Employers should be aware of their obligations in providing these benefits and ensure compliance with relevant tax laws. Employees should also consider the tax implications when assessing the overall value of their compensation package. Seeking professional advice from tax experts or accountants is recommended to ensure compliance and maximize the benefits of employee perks within the UK tax framework.

Typically staff perks are regarded as trivial benefits and as such are exempt from tax implications so long as they meet all the criteria set out by the HMRC.

Of course, we advise all our customers to take professional advice from their accountants or tax adviser.

Give your team perkfect perks with Live Like Loyalty, to discuss providing our employee benefits to your team please get in touch with us today.