What are the best tax free perks?

You know that there are certain items or services your company can pay for without incurring a tax charge, but you are not sure about the details. What are the most valuable tax-free perks for owner managers and which ones are you possibly missing out on?  Tax Partner, Christiaan Hansen, explains.

A common question is whether a company can pay for goods or services that benefit the owner manager rather than the business. In theory your company can pay for almost anything. The issue is the tax treatment of such purchases which will ordinarily be classified as either earnings or benefits in kind.

However, some benefits in kind are tax efficient. The ones that are exempt from tax won’t cost you a penny in income tax or NI and, as an added bonus, your company gets a corporation tax deduction for the cost.

Here are the most valuable perks for owner managers based on who can use them and the potential savings each year.

Your commute – variable
Assuming you need to travel to your office or business premises regularly, you can reduce the cost of your commute. Tax exempt-benefits your company can provide include parking costs, a bicycle and related safety equipment and a workplace charger if you have an electric vehicle.

EXAMPLE. Lewis works at a city centre office three days per week. The local car park charges £5 per day and if the company pays, Lewis saves up to £780 per year.

Trivial benefits – up to £300
A benefit in kind that costs your company no more than £50 is exempt. The benefit must not be cash or a voucher convertible into cash. A gift voucher is fine because it can only be exchanged for goods or services and not cash.

Please note, for directors of close companies and their families, the total cost to the company must not exceed £300 per tax year.

Mobile phone
A mobile phone is now an essential purchase, especially for business owners. Thankfully the provision of a mobile phone and related services is an exempt benefit. With the latest phones easily costing four figures over the course of the contract, this is a valuable perk.

Please note, for the exemption to apply, the contract for the phone must be between your company and the service provider. The exemption includes private use too.

Interest-free loans
Your company can lend you up to £10,000 interest free over the course of a tax year. Go over this amount and you’ll pay tax based on HMRC’s official rate of interest. You’ll need to pay it back within nine months of year end, but an instant, interest-free loan is a huge perk.

Pension contributions – up to £60,000
The most valuable tax free perk of all is employer pension contributions. The most underrated tax perk of all, the exemption allows your company to pay up to £60,000 per year into your pension tax free. Once the cash is invested within the pension fund, it also grows tax free. Once you are old enough, you can withdraw 25%, also tax free.

IN SUMMARY
The top tax-free perks for owner managers are employer pension contributions, interest-free loans up to £10,000 and the provision of a mobile phone. Runners up are trivial benefits that cost less than £50, and those related to your commute such as parking, a bicycle and/or workplace chargers for electric vehicles.

If you would like to discuss this further with the JRW Hogg & Thorburn team please do get in touch.