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.Reuse content