Tax-efficient staff benefits

By leveraging tax-efficient staff benefits, employers can reduce their overall tax liabilities while providing meaningful rewards to their teams. Get in touch for tailored advice on implementing these schemes in your business.

Maximising employee rewards while saving on tax

Offering tax-efficient staff benefits is a great way for employers to reward employees without incurring significant tax or National Insurance costs. These benefits can help reduce overall tax liabilities for employers and employees while enhancing workplace satisfaction.

Working-from-home allowance

If employees are required to work from home, they may be able to claim tax relief of £6 per week or £26 per month from HMRC. Alternatively, employers can pay this allowance to employees tax-free via payroll.

Key points:

• The allowance only applies if employees are required to work from home, not if they choose to.
• Hybrid working policies where homeworking is optional may not qualify.

Mobile phones

Employers can provide each employee with one mobile phone, including its line rental and the cost of private calls, without it being considered a taxable benefit-in-kind. This exemption applies only if the employer retains ownership of the phone and the contract is between the employer and the service provider. If the contract is in the employee’s name and the employer reimburses the costs, the payments are treated as taxable earnings subject to PAYE tax and national insurance contributions.

Electric vehicles

Providing company cars with low emissions, such as electric or plug-in hybrid vehicles, offers significant tax advantages.

• Employees pay a 3% benefit-in-kind tax on fully electric cars for 2025/26. This rate is scheduled to increase by 1% each subsequent tax year, reaching 4% in 2026/27 and 5% in 2027/28.
• Hybrid cars with CO₂ emissions of no more than 50g/km and an electric range of over 130 miles or above also qualify for the 3% rate.
• Employers can save on Class 1A National Insurance and may claim capital allowances on electric vehicles.

Employers can also offer charging facilities at work as a tax-free benefit.

Salary sacrifice schemes

Salary sacrifice arrangements allow employees to exchange part of their salary for benefits, such as:

• Pension contributions
• Electric vehicles
• Childcare vouchers (if still eligible)
• Cycle-to-work schemes

These schemes can reduce taxable income and save on income tax and national insurance.

Trivial benefits

Employers can provide small, non-cash benefits worth up to £50 per employee tax-free. To qualify, the benefit:

• Must not be cash or a voucher that can be converted into cash.
• Cannot be linked to performance or contractual obligations.

The exemption for directors of close companies is limited to six qualifying benefits per tax year, with a total annual value of £300.

Key considerations

• Benefit options: Review the range of benefits offered to ensure they are tax-efficient and attractive to employees.
• Salary sacrifice impacts: Ensure employees understand the potential effect of salary sacrifice arrangements on their pension contributions and statutory benefits, such as maternity pay.
• Employee engagement: Promote awareness of available benefits to maximise uptake and employee satisfaction.
• Compliance: Keep detailed records of benefits provided to ensure compliance with HMRC rules.