Bah, humbug! It's the taxman

Employee perks: Yuletide office parties can fall foul of the Inland Revenue, says Anthony Bailey

Christmas is coming and the office party season will soon be in full swing. But does your employer provide an extravagant festive bash? If it is too lavish, you could end up with a tax bill. Entertainment of staff by employers is tax-free, provided it does not cost more than pounds 75 a head. That is, pounds 75 a year. In practice most people will not be taxed. But a number of other "benefits-in-kind" are taxable.

In recent weeks we have looked at the tax status of perks such as company cars, employee share options and workplace nurseries. Here is a round- up of how the Inland Revenue taxes other popular benefits.

The main rule is that if a benefit is taxable you pay tax on the "taxable value". In many instances this is the cost incurred by your employer of providing the benefit (though you would deduct from that cost anything you pay your employer for the benefit). So if, say, a benefit has a taxable value of pounds 100, pounds 100 is added to your income. The tax you pay will depend on your other taxable income for the tax year: 24 per cent taxpayers will pay pounds 24 tax on a benefit with a taxable value of pounds 100, 40 per cent taxpayers will pay pounds 40.

Tax is collected by an adjustment to your tax code. Anyone with taxable benefits should scrutinise their Pay As You Earn (PAYE) coding notice to check that the taxable values given for benefits are correct. If they appear wrong, contact your salaries department. It provides the information to your tax office on which your code is based.

PAYE coding notices are sent out in January and February for the forthcoming tax year, which starts on 6 April. But they can also be sent out at any time if there is a change to your code. Codes can change long after you have started to receive a new taxable benefit, or have ceased to receive one, or have had a change in the value of the benefit. The system whereby employers report benefits and tax offices process those reports can be long-winded. This makes it more important to ensure that you end up paying the correct amount.

Accommodation: accommodation that goes with a job is often tax-free. This applies if you have to live in job-related accommodation to do the job or if you have a job where it is normal to have accommodation provided. It is also tax-free if accommodation is provided because of a threat to your security. Accommodation provided for company directors is normally taxable. While accommodation may be tax-free, heating and lighting and so on is not tax-free if your employer pays the bills.

Discounts at work: these are generally tax-free if they do not cost your employer anything. They will not cost anything if, for example, the discount is no more than your employer's profit margin.

Gifts: it would be too easy a tax-dodge if employers were allowed to make gifts to staff. So gifts could be taxable. But gifts (excluding money) to mark a special occasion, such as your wedding, will be tax free. Freebies that come your way during the course of your work from people other than your employer will be tax-free only if they cost no more than pounds 150.

Life insurance: many employers provide free life insurance, called death-in-service benefit, which typically pays out three or four times your before-tax earnings if you die. Free life insurance normally gets approval from the Inland Revenue to make it a tax-free benefit.

Loans: loans such as season ticket loans are tax-free up to pounds 5,000. But if the total exceeds pounds 5,000 (excluding mortgage loans) you are taxed on all the loans, including the first pounds 5,000. The taxable value of an interest-free loan is equivalent to the official rate of interest. Any interest you pay can be deducted.

Luncheon vouchers: taxable, although the first 15p a day is tax-free. But the benefit of subsidised works canteens is normally tax-free.

Mobile phones and car phones: fixed taxable value of pounds 200. That is, you pay tax at your highest rate on pounds 200.

Mortgages: a mortgage that qualifies for tax relief is valued for tax purposes at an official rate of interest set by the Inland Revenue, less any interest you pay your employer. Interest on a mortgage of pounds 30,000 at the official rate of 6.75 per cent comes to pounds 2,025 a year. Say you pay your employer 3 per cent, or pounds 900. Take pounds 900 from pounds 2,025 to get pounds 1,125. That is what you are taxed on. Mortgage interest relief at source (Miras), assuming you are not claiming it elsewhere, can reduce this tax bill. Miras is worth 15 per cent of the interest on the first pounds 30,000 of a loan: 15 per cent of the current official rate comes to pounds 303.75, which would more than cancel out the tax bill for a basic rate taxpayer in this example (since his tax bill would otherwise be pounds 270, or 24 per cent of pounds 1,125).

Permanent health insurance: the value of premiums for insurance that pay out an income while you are off work sick is, like life insurance, tax-free approved by the Inland Revenue. But you will be taxed on payouts. If you pay part of the premium the taxable value of any payout is reduced proportionately.

Sports clubs: you are taxed on what your employer pays by way of subsidy. If you get free membership of a sports club you may be taxed on less than the normal cost of membership if your employer has negotiated a reduced rate for employees.

Rewards for staff suggestions can be tax-free up to pounds 5,000.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
News
people
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced