As well as paying your salary, some employers give you benefits such as a company car, health insurance or a dental plan, while you’re working for them. Some of these are taxable benefits and some aren’t. This article will help you understand which category each benefit falls under.
Taxable and non-taxable benefits
There are a lot of different kinds of employee benefit, and some of them you don’t need to pay tax on.
If you’re receiving a benefit and it’s taxable, it will usually affect the tax deducted on your payslips and you’ll get a record from your employer after the end of each tax year listing the taxable value of each benefit.
You can check with your employer if you’re not sure.
Changes to your employee benefits
If you start getting employee benefits, or you used to get them and have now stopped, you need to tell HM Revenue & Customs (HMRC).
They can then change your tax code to make sure you’re paying the right amount of tax.
Benefits only last as long as you’re employed
If you’re considering leaving work, it’s worth bearing in mind that you’ll have to give up employee benefits when you go.
Factor in the cost of any employee benefits you might receive, like car or life insurance, when you’re deciding how you’ll manage your finances after leaving a job.
Types of employee benefits
Different companies handle benefits in different ways. This section explores common types of benefits given by organisations.
Core and flexible benefits
Core benefits are offered to everyone in the company who is eligible for them. It always makes sense to take core benefits when they’re offered.
Flexible benefits means the employer offers a selection of benefits and you can pick which ones are most useful to you. For example, if you have a family you might choose child care benefits, whereas a single person might choose personal health insurance. Some companies offer both core and flexible benefits.
Cash instead of benefits is another option your employer might provide. Weigh up your options and priorities before deciding, taking into account your partner or family if you have one. Be aware that benefits swapped back for cash will be subject to employee National Insurance contributions as if they were normal pay.
Don’t take out the same benefits twice
If you start to get benefits from work, check that you and your partner aren’t already paying for the same things privately.
For example, you could have a personal life insurance policy, but then start a job where the package includes life insurance, meaning you might be paying for more cover than you need.
Life cover through work is typically two or four times annual salary.
You might still want to top up with some private cover – just not quite so much.
A list of common employee benefits
We’ve listed some common types of employee benefits, along with information about whether you need to pay tax on them or declare them to HMRC.
Private health insurance
Do you pay tax or National Insurance (NI) ? Yes. You’ll usually have to pay tax on the cost of insurance premiums if they are paid by your employer. You can get some medical benefits tax free, for example, annual health checks, eye tests required because you use a computer at work, or if you need treatment when you’re in a foreign country for work.
Do you pay tax or NI? Yes, if you or your family use a company car privately, including commuting to work. This will be based on the value of the car and the type of fuel it uses. You’ll also have to pay tax on the cost of fuel your employer provides for the car if it’s for private use.
Do you pay tax or NI? Yes, if the amount is over £10,000 in a year. You pay tax on the difference between the interest rate you pay to your employer and the official rate of interest set by the Bank of England.
Do you pay tax or NI? If your employer provides a payment on death as part of your pension scheme, it’s not taxable.
Do you pay tax or NI? If your employer provides childcare (for example in a crèche) you don’t have to pay anything. If they provide you with childcare vouchers or contract someone to provide childcare, there’s tax to pay if the vouchers exceed more than a certain amount. How much you get tax free depends on what rate of tax you pay.
A Tax-Free childcare scheme is due to be launched in early 2017. Follow the link below for more information.
Season ticket for travel
Do you pay tax or NI? Maybe. Season-ticket loans have the same rules as interest-free loans (see above).
Do you pay tax or NI? If it’s an Approved Share Scheme, you get certain tax advantages, like getting some of the shares tax free.
Free or subsidised food and drink
Do you pay tax or NI? No, if it’s hot drinks or water, or if food is provided at a canteen, that’s open to all staff. There are different rules if food and drink is provided outside work.
Accommodation (house, flat or hotel)
Do you pay tax or NI? Yes, although there are exceptions for people who are provided accommodation by their employer so they can do their job, or do it better, such as caretakers or agricultural workers.
Do you pay tax or NI? No, provided the counselling isn’t to do with financial matters (apart from advice on pensions to the value of £150 a year and debt advice), legal matters, medical treatment or leisure activities.
Changes to employee benefits from April 2017
The government has announced that the tax advantages of some employee benefit arrangements offered through salary sacrifice schemes will end in April 2017.
After this date, you will have to pay tax and National Insurance (NI) on these benefits if you take them up as part of an employment package.
Some benefits will continue to be offered tax and NI-free through salary sacrifice schemes after April 2017.
- Cycle to Work schemes.
- Ultra-low emission cars.
- Pensions (including advice).
Employee benefits that are due to end but which are taken out before April 2017, will be protected from tax or National Insurance until April 2018.
Employee benefit schemes that include cars, accommodation and school fees will be protected until April 2021.
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