Tax allowances

Employers must generally pay tax and National Insurance on benefits and expenses paid to employees, however there are various exceptions and allowances available.

We've highlighted key allowances below, however you'll find a full A-Z at gov.uk.

Let us know what benefits you've paid each employee and we'll report them to HMRC on form P11D every year by 6 July. Alternatively, we may be able to report them through payroll.

Automatic exemptions

There's no need to tell HMRC about expenses covered by an exemption, provided you:

• pay the rate approved by HMRC or

• pay the employee's actual costs.

Apply for an exemption

If you want to pay a bespoke rate because the rate approved by HMRC won't cover your employees actual expenses, you can apply for an exemption.

Equipment, services and supplies

You can provide equipment, services or supplies to employees who work from home, such as IT, office furniture and stationery without having to pay tax or National Insurance (provided they are primarily for business use).

Extra household expenses

Employees may incur extra expenses at home, such as heating and lighting, which you may wish to reimburse. There must be a regular arrangement to work at home (such as working at home 2 or 3 days a week, not simply bringing work home in the evening to catch up).

You can pay an allowance provided:

• they need to work at home (the equipment they need isn't available at your workplace, or they live too far away to travel there every day)

• the amount you pay is no more than their additional household expenses.

You can pay up to £26 per month without having to obtain evidence of their additional household expenses. If you wish to pay more than £26 per month, you will need evidence to support this.

Further details are available from gov.uk/expenses-and-benefits-homeworking.

Tax relief

If you do not pay an allowance or reimburse expenses, employees may claim tax relief on their working from home expenses provided:

• there are no appropriate facilities available for them to perform your job on their employer's premises, or

• the nature of the job requires them to live so far from the employer's premises that it is unreasonable for them to travel to those premises on a daily basis, or

• they are required, under government restrictions, to work from home

They cannot claim tax relief if they have just chosen to work at home. This is a change to the more relaxed policy which took effect from 23 March 2020 until 5 April 2021 (see HMRC's working from home guidance for employees).

Remember, employees cannot claim tax relief if their employer has paid an allowance or reimbursed their expenses. The allowance is more valuable to employees than tax relief on the allowance.

Accommodation and Subsistence

While employees are travelling on business (e.g. to an appointment, to a temporary workplace or conference) you can generally reimburse 'expenses necessarily incurred in the performance of the duties' including:

• any necessary subsistence costs incurred in the course of the journey

• the cost of meals necessarily purchased at a temporary workplace

• the cost of accommodation and any necessary meals where an employee is away overnight.

Personal Incidental Expense Allowance

Other incidental expenses aren't exempt, but you can pay a tax free allowance of:

• £5 per night for travel within the UK

• £10 per night for travel outside of the UK

to cover personal incidental expenses such as buying newspapers, paying for laundry or phoning home.

For further information see gov.uk/expenses-benefits-incidental-overnight-expenses

See gov.uk/expenses-and-benefits-a-to-z.

Employees are normally responsible for the cost of travel between home and work, and any help you provide would usually be considered a benefit.

However you can pay for taxis for employees in the following circumstances without incurring tax or National Insurance:

• after occasional and irregular late-night working

• if a car-sharing system is temporarily unavailable

• to get to work when public transport has been disrupted by industrial action

Find out more at gov.uk/expenses-and-benefits-travel/whats-exempt

The good news is that work uniform and protective clothing are exempt from tax and National Insurance, however you do need to report the cost unless you have applied for and received an exemption.

There are strict rules around what constitutes 'uniform'. For example, if your uniform comprised a branded shirt worn with black trousers and shoes, only the shirt would be considered uniform.

Further details are available at gov.uk/expenses-and-benefits-clothing.

Childcare voucher schemes are closed to new entrants, however employees may be eligible for Tax Free Childcare.

You can provide equipment and services to disabled employees to enable them to do their work without having to report or pay tax or National Insurance.

There is still no tax to pay if the employee also makes significant private use of the equipment (e.g. a wheelchair or hearing aid).

Find out more at gov.uk/expenses-benefits-items-for-disabled-employees, and see how you can make reasonable adjustments for disabled employees.

If you're planning a staff party, remember to check that it falls within one of the available exemptions. If not, you will have to declare it as a chargeable benefit on a P11D for each employee, and pay National Insurance on the value.

Make the most of the exemptions available for your parties

However the good news is that there are exemptions. In order to make the most of them, here's what you need to know.

The cost of annual events such as Christmas parties, summer BBQs and annual days out are exempt. However you must meet all of the following conditions:

1. The event is an 'annual' event. It can't be a one-off event, such as a retirement party, or a team building event.

2. It must be open to all employees. It's okay to have more than one event, such as a Christmas party for your Exeter branch and a separate party for your Taunton branch, or one for your office staff and site-based staff. Remember, you must invite everyone.

3. The cost per head must be less than £150 (including VAT). That's the total cost of the event(s) including food, travel, accommodation etc, divided by the total number of (planned) attendees. If someone cancels at the last minute because they are unwell, they are still included in the number of attendees. The number of attendees includes the employees who said they'd attend, together with any guests such as partners, children, sub-contractors.

4. Multiple events can be covered, so, for example, you could spend £90 per head on your Christmas party and £47 per head on a summer party. If you spend £140 on your Christmas party, and £47 on your summer BBQ, you can only cover your Christmas Party with this exemption, but your BBQ may be exempt as a 'trivial benefit' under £50 (see gov.uk/expenses-and-benefits-trivial-benefits). It’s a limit not an allowance, so if the cost is £151 per head the whole £151 would be taxable - not just £1 per head. The whole cost is still an allowable, tax deductible expense for your business.

Find out more at gov.uk/expenses-benefits-social-functions-parties

Let us know what your party plans are this year, and we'll help you check whether the exemptions apply.

Benefits costing £50 or less

The good news is that 'trivial' benefits are exempt from tax and National Insurance.

These are benefits which cost £50 or less to provide and aren't:

• cash or a cash voucher

• a reward for work or performance

• included in the terms of employment.

Restrictions on Directors

If you are a Director of a 'close company' you can't receive more than £300 of trivial benefits in each tax year. (A 'close company' is run by 5 or fewer shareholders).

Find out more at gov.uk/expenses-and-benefits-trivial-benefits