Correctly Reporting Employee Benefits

Workplaces and behaviours have evolved over recent years with many employers introducing new approaches in their attempts to create a culture that ensures they attract and retain the talent required.

Jo Gander, Senior Employment Tax Manager at Azets, answers common questions the tax implications that employers need to be aware of:

1 I’m trying to encourage my employees back to the workplace. What can I do without creating an additional tax burden or reporting obligation?

An employer can provide food and drink in the workplace without a charge to tax or reporting obligation arising. Any food or drink provided does need to be on a reasonable scale and available to all employees, or where the employer has multiple workplaces, all employees at that location.

2 As many of our workforce work remotely, we’ve started to hold more staff social events to get teams together, is there anything I need to consider?

Whilst there are some exceptions, staff entertaining and social events will usually give rise to tax liabilities and reporting obligations. Whilst the starting point is that the costs are taxable on the employee, many employers prefer to report this expenditure on a PAYE Settlement Agreement (PSA).

Some annual staff social events may be exempt from a tax charge. To qualify for exemption, the event must cost the employer less than £150 per attendee (VAT inclusive) and be open to all employees, or where the employer has multiple sites, all employees at a particular location. The exemption can be applied to multiple events as long as the aggregated cost does not exceed £150 per attendee and each event satisfies the criteria.

Where events are infrequent and not provided to reward, recognise or incentivise, the Trivial Benefits exemption may also be applied. Please see question 4 for more information.

3 Our employees work on a hybrid basis with two days in the office and 3 days at home, can we pay their mileage on the days they work in the office?

Employees working under hybrid arrangements where they are regularly required to work in the office, will have two permanent workplaces. Paying or reimbursing costs for travel to a permanent workplace will be chargeable to both tax and Class 1 National Insurance.

If an employee is a home-worker who is only required to attend the office for a particular business purpose of a limited duration, the office may be considered a temporary workplace. The rules are complex, and we recommend seeking advice on the matter.

4 We used to take employees to lunch on their birthdays but as our workforce are now entirely home-workers, is there something else we can do?

Employers who wish to recognise personal or calendar events, can utilise the Trivial Benefit tax exemption available. This exemption allows employers to provide small benefits to employees when the following conditions are satisfied:

• The benefit cost the employer £50 or less to provide (VAT inclusive).

• It is not given in cash or a cash voucher (vouchers that can only be exchanged for goods or services are permitted).

• It is not given in reward or recognition of services or to incentivise performance.

• The employee does not have a contractual entitlement to receive it.

5 An employee has asked if the company can pay some of her broadband and electricity costs for working at home, is this possible?

Whilst it is possible for an employer to reimburse additional costs incurred by the employee when they are required to work from home, it can be extremely burdensome to separately identify the costs that wholly relate to the costs incurred because of working from home. To avoid this administrative burden, employers can pay employees required to work from home a Home Working Allowance of £6 per week or £26 per month without a charge to tax or NICs or the requirement to keep records.

The rules for taxpayers to claim tax relief when the employer does not pay the Home Working Allowance are much stricter with hybrid arrangements not qualifying.

For more information on any of these subjects or to discuss your employer benefits and expenses reporting obligations, please get in touch with our Employer Solutions team today.

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