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
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the iWatch for you? Well, it depends if you want for the fitness tech, or the style
Astronauts could be kept asleep for days or even weeks
scienceScientists are looking for a way to keep astronauts in a sleeplike state for days or weeks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own