Normally, if a benefit is provided to you, it will be taxed in the same way as a salary. However, there are some exceptions to this rule – detailed below – which can result in significant cost savings, in the form of Corporation Tax, VAT, income tax and NIC.

For example, if a cost can be incurred by the business, the equivalent saving (ignoring VAT savings) on the monthly cost could be around:

• 25% if you take dividends and are a basic rate taxpayer
  
  
• 45% if you take dividends and are a higher rate taxpayer
  
  
• 40% if you are salaried and are a basic rate payer
  
  
• 49% if you are salaried and are a higher rate taxpayer
  
  

Given the savings, consideration should be given to the following costs and whether they can be incurred by the business rather than personally.

Life insurance

Relevant life assurance is very similar to a typical life insurance policy. Policies usually pay out a sum to beneficiaries in the event the insured person (e.g. the business owner) dies.

Alongside the monthly tax cost savings, policies can also be written ‘into trust’ so that they are outside the scope of inheritance tax.

Obtaining cover for the wider workforce can also be a great way to retain employees.

Pension advice

If you need to seek pensions advice, it is tax free up to £500 in value if it is paid for by the business.

Mobile phones

One mobile phone can be given to every employee in the business – including you and any family members that are employed – and there is no tax or NIC regardless of whether the phone is used for personal calls, messaging, etc.

It may also be attractive to employees to have a phone that is better than one they would otherwise have if they bought a phone personally.

It is also possible for the company to offer a second mobile phone to you and certain employees provided the phone has insignificant personal usage. In other words, the main reason for providing the second phone to you is for business purposes. This would allow employees who want separation of home and work matters to have two mobile phones.

A tablet which allows you access to make calls via Skype or FaceTime isn’t deemed to be a mobile phone – it is treated as an employee use of a business asset.

Anything except cash that costs less than £50

This is subject to specific restrictions detailed below, but in short you could buy anything via the business as a way to extract value, e.g. your favourite bottle of perfume/aftershave, an Amazon gift card to buy something for your house or take your family for a meal whilst on holiday, provided it costs less than £50. This is an effective way to extract value from your business.

For you as a director, the total amount that can be spent per year on items like this is £300. For other employees, the amount is uncapped.You can be given up to £300 in “gifts” annually, provided certain conditions are met:

1. Each gift value must not exceed £50
   
   
2. Each gift must not be cash or something that can be turned into cash. This means things like Amazon vouchers or supermarket vouchers are fine, provided they can’t be traded in for cash.
   
   
3. It must not be part of their contract or salary.
   
   
4. It must not be in recognition of services (i.e. performance related).

They are also known as “Trivial Benefits”.

If family members are employed by the company, they can also be given up to £300 in gifts in the same way. If family members who are not employed are given gifts, this counts towards the £300 cap. For other employees, the gift amount is uncapped. Giving benefits like this to staff can be massively rewarding for them, helping to achieve motivated staff and high retention levels.

Staff functions

Provided the cost per attendee is less than £150, an event for staff – for example at Christmas – is not taxable on you or your employees.

As an example, a business with 5 employees could each take a guest to an event. Provided the total cost is less than £1,500 it falls within the exemption detailed above. This exemption can be aggregated over the year, so for example you could have 2 events costing £75 per head, and it would still be tax free.

Employee car parking

Paying for a car parking space for yourself or an employee can be very beneficial for city centre businesses where the cost of parking can be high. The car park space must be at or near to your office to be tax free.

VAT registered businesses can also reclaim the VAT element of the cost, giving a further saving.

This can also be a very efficient way to reward employees who need to drive into a place of work and have to park in an expensive car park.

Training

Work training can cover a wide range of areas that are wholly for business purposes, such as professional development and health and safety. Instead of incurring the cost personally, the business can pay for your training as a tax-free benefit.

32 Ways To Save Tax and Extract Maximum Value From Your Business

These tips are from our eBook, 32 Ways To Save Tax and Extract Maximum Value From Your Business. This guide explores 32 ways to ensure you’re maximising every opportunity you could be, to improve your life, your families and your employees.

Download 32 Ways To Save Tax and Extract Maximum Value From Your Business eBook.