Category: Employee Benefits

Employers can usually provide bicycles and cycling equipment to employees as a tax-free benefit. The Cycle to Work scheme can help employees save tax and National Insurance on the cost of providing cycling equipment while encouraging more sustainable travel.

Under the scheme, employers can lend or hire bicycles and cyclists’ safety equipment to employees without creating a taxable benefit, provided certain conditions are met. The offer must be available generally to employees and the bicycle must be used mainly for qualifying journeys, such as travelling between home and work. Employees can still use the bicycle for other purposes, including leisure use, provided this is not the main use.

The scheme can cover bicycles, including electrically assisted pedal cycles, together with relevant safety equipment such as helmets and other cycling accessories. Two bicycles may be provided where this is necessary for a qualifying journey, for example where an employee cycles at both ends of a train journey.

Where the conditions are satisfied, employers do not need to report the benefit to HMRC and there is no Income Tax or National Insurance charge for the employee or employer. The scheme is usually operated through a salary sacrifice arrangement, allowing employees to pay for the equipment from their gross salary and benefit from tax and National Insurance savings.

Providing benefits and covering expenses for employees is a common part of running a business, but it is important to understand the tax implications. A benefit that appears simple or low value could create unexpected reporting obligations or result in additional tax and National Insurance liabilities if it is not treated correctly.

Employers should consider whether any payments, benefits or personal expenses provided to employees need to be reported to HMRC. These rules apply to a wide range of benefits, including company cars, fuel, private medical insurance, loans, accommodation, mobile phones, childcare support, vouchers and certain employee entertainment.

Not all benefits are treated in the same way. Some may be exempt from tax if specific conditions are met, while others may need to be reported through PAYE or included on a P11D form. Even where an item is provided for a genuine business reason, any element of personal use may need to be considered.

Employers should also be aware of less obvious areas that can create issues, such as paying personal bills, providing assets for employees’ use, reimbursing travel costs, offering staff parties or providing subscriptions and professional fees.

Keeping accurate records and reviewing employee benefits regularly can help avoid unexpected tax charges and penalties. It is also important to distinguish between genuine business expenses and benefits provided to employees, as they may have different tax treatments.

Employees may be entitled to tax relief on certain professional fees and subscriptions that they pay personally. The relief is available where membership of a professional body is required for an individual to carry out their duties, or where annual subscriptions are paid to an HMRC-approved professional organisation or learned society that is relevant to their occupation.

However, not all subscriptions qualify. Tax relief is not available for life membership fees, subscriptions paid to organisations that are not approved by HMRC, or fees that have been paid by someone else, such as an employer. In general, the individual must have incurred the cost themselves, and the expense must be directly related to their work.

Claims can be made for the current tax year as well as the previous four tax years, meaning that individuals who have not claimed relief in the past may be able to obtain a tax refund.

Evidence of payment should be retained to support any claim. This may include receipts, invoices or other documentation showing the amount paid and the organisation to which the payment was made.

Employees who are not within self-assessment can usually submit a claim directly to HMRC using its online expenses service. Those who complete a self-assessment tax return must instead claim the relief through their tax return.

Anyone who pays professional subscriptions should review whether they are entitled to relief, particularly if claims have not been made in recent years.

When employers provide mobile phones to employees, it is important to understand the tax treatment that applies to both the device and any related costs. The rules also differ where employers reimburse employees for their personal mobile phone expenses.

HMRC provides a specific exemption where an employer supplies one mobile phone (or SIM card) per employee and the contract is between the employer and the mobile phone provider. In these cases, the provision of the phone is generally exempt from Income Tax and National Insurance, even if the phone is used for personal purposes. The exemption covers the handset, line rental, and the cost of calls, texts and data paid for by the employer.

If the telephone expenses are not exempt, then they must be reported to HMRC, and employers may have to deduct and pay tax and National Insurance on them. Employee’s mobile phone expenses do not have to be reported if they are part of a salary sacrifice arrangement.

For example, if an employee arranges the phone but you pay the supplier then you must:

• report the cost on form P11D
• pay Class 1 National Insurance through payroll.

Employees may receive a taxable benefit where an employer provides a loan that is interest-free or charged at a rate below HMRC’s official interest rate (currently 3.75%). The benefit arises from the difference between any interest actually paid by the employee and the interest that would have been charged by a commercial lender.

These arrangements are commonly referred to as beneficial loans. In many cases, the value of the benefit is subject to Income Tax and National Insurance, and employers may need to report it to HMRC.

However, a number of exemptions can apply so that no tax charge or reporting requirement arises. One of the most common is where the total outstanding balance of loans to an employee does not exceed £10,000 at any point during the tax year.

Other exempt situations include:

• loans made in the normal course of a domestic or family relationship, where the loan is made by an individual (and not by a company they control);
• loans provided on terms where both the interest rate and repayment period are fixed and the interest rate is at or above HMRC’s official rate when the loan is taken out;
• loans offered on the same terms and conditions to the general public, typically by commercial lenders;
• loans that are “qualifying loans” for tax relief purposes, where all of the interest is eligible for tax relief; and
• loans made through a director’s loan account, provided the account is not overdrawn at any point during the tax year.

Where an exemption applies, no taxable benefit arises and there is generally no requirement for the employer to report the loan to HMRC.

There is no requirement to report certain travel and subsistence expenses where an exemption applies. The travel and subsistence benefits that do not need to be reported include reimbursed costs to employees covering business travel. Subsistence includes meals and any other necessary costs of travelling, for example parking charges, tolls, congestion charges or business phone calls.

As an alternative to reimbursing employees for actual costs incurred, HMRC’s benchmark scale rates or an approved bespoke scale rate may be used. If an employer is looking to use a bespoke scale rate, this must be agreed with HMRC in advance. Where a scale rate arrangement is in place there are no specific reporting requirements.

Employers that reimburse employees with more than the necessary costs of business travel must treat the excess as earnings. The additional amount should be added to the employee’s other earnings, and PAYE and Class 1 National Insurance will be due.

There is usually no tax relief for private travel between a permanent workplace and an employees’ home. Accounting for any tax due on private travel depends on who arranged the transport and who paid for it.

There are exemptions for certain types of travel, including a works bus service, certain disability-related travel, taxis after occasional and irregular late-night working, bicycles and cycle safety equipment and travel due to public transport disruption from industrial action.
 

The range of benefits that can be provided tax-free by an employer is relatively limited, but there are several common exemptions that apply where certain conditions are met.

Meals provided in a staff canteen can be exempt where they are offered to all employees on a reasonable scale and are not seen as excessively lavish. This exemption does not apply where meals are provided under salary sacrifice or flexible remuneration arrangements. Employers can also provide hot drinks and water at the workplace without triggering a tax charge.

The provision of one mobile phone per employee is generally not taxable, provided it is supplied by the employer for business use. Parking facilities can also be provided tax-free, including workplace parking for cars or motorcycles, as well as bicycle parking at or near the place of work. Certain staff entertainment can qualify for exemption, such as annual or Christmas parties, provided they are open to all employees and the cost does not exceed £150 per head.

Other exempt benefits can include medical insurance or treatment for employees working overseas, as well as one annual health screening or medical check-up per employee. Long service awards and awards under approved suggestion schemes may also qualify, subject to specific limits.

Where a benefit falls within a statutory exemption or HMRC concession, it is not taxable and does not need to be reported on a tax return.

Employers looking to provide staff with small gifts or seasonal tokens of appreciation should remember the rules for tax-free trivial benefits.

A benefit can qualify as a trivial benefit where all of the following conditions are met:

• the benefit costs £50 or less;
• it is not cash or a cash voucher;
• it is not provided as a reward for work or performance;
• it is not provided under the terms of the employee’s contract or as part of a salary sacrifice arrangement.

Where these conditions are satisfied, there is generally no tax or National Insurance to pay, and the benefit does not need to be reported to HMRC.

Typical examples may include a modest Christmas gift, a bottle of wine, flowers or a non-cash gift voucher costing no more than £50. So, for example a turkey that cost £45 would qualify as would a £15 bottle of wine. However, care should be taken to ensure that the gift is simply a gesture of goodwill and not linked to the employee’s performance or duties.

If a trivial benefit is provided through a salary sacrifice arrangement, the exemption will not apply, and a taxable benefit may arise. In such cases, the amount reportable on form P11D will generally be the higher of the salary given up or the cost of the benefit provided.

Directors of close companies should also remember that there is an annual cap of £300 for trivial benefits. A close company is broadly a company controlled by five or fewer shareholders.

Employees who receive fuel from their employer for private use in a company car can avoid paying the car fuel benefit charge by reimbursing the full cost of the private fuel. This process, known as "making good," requires the employee to repay the employer for private fuel no later than 6 July following the end of the tax year. For the 2025–26 tax year, the repayment must be completed by 6 July 2026.

If the repayment is not made by the deadline, the employee becomes liable for the car fuel benefit charge. This charge is calculated based on the vehicle’s CO2 emissions and the car fuel benefit multiplier. The charge applies regardless of the actual amount of private fuel used, making it potentially costly for employees who only use a small amount of fuel for private journeys, such as commuting.

To avoid the car fuel benefit tax the employee must reimburse the total cost of all private fuel used during the year, including fuel used to travel to and from work. Keeping accurate mileage records is essential. HMRC will only accept that no benefit has arisen if the full cost is repaid by the deadline. In many cases, repaying the private fuel cost can be more financially beneficial than paying the fuel benefit tax charge.

The rules on claiming tax relief for working from home are changing for the new 2026-27 tax year. In most cases, employees will no longer be able to claim relief for homeworking, although claims can still be made for the previous four tax years. The removal of the tax relief was announced in the Autumn Budget last year and it is estimated that some 300,000 taxpayers will be affected by the change.

Relief is only available if you have to work from home for your job, for example, if your role requires you to live far from the office or your employer does not provide an office to work from. You cannot claim tax relief if you choose to work from home, including under flexible arrangements allowed by your contract.

Where eligible, you can claim for work-related household costs such as business phone calls or the additional gas and electricity used in your work area. You cannot claim for costs used for both private and work purposes, such as rent or broadband.

Tax relief can be claimed at £6 a week or for the exact amount spent, and the relief is calculated based on your income tax rate. For example, if you pay the 20% basic rate of tax and claim tax relief on £6 a week, you will get £1.20 per week in tax relief (20% of £6). Evidence is required for claims, including receipts or bills if claiming actual costs.

Claims for the current and previous tax years can be made through https://www.tax.service.gov.uk/claim-tax-relief-expenses/claim-any-other-expense. If you complete a self-assessment tax return, you must claim through your tax return instead. The new rules mark a return to stricter pre-pandemic rules when tax relief was only available when working from home was required and not optional.

The trivial benefits legislation provides a simple and practical tax exemption that allows employers to give small non-cash benefits to employees without triggering tax or National Insurance charges.

To qualify as a trivial benefit, the cost to the employer must not exceed £50 per item. The benefit must not be cash or a cash voucher and must not be provided as a reward for work or as part of the employee’s contractual entitlement. It must also not be provided in recognition of particular services performed. Typical examples include modest gifts such as flowers, a bottle of wine, a meal voucher or a small seasonal gift.

Where these conditions are met, the benefit is exempt from Income Tax, employer’s and employee’s National Insurance and does not need to be reported to HMRC.

For directors of close companies, an additional annual cap applies. Such individuals are limited to £300 of trivial benefits per tax year, calculated as an aggregate of qualifying items. This limit does not apply to ordinary employees.

The rules are designed to reduce administrative burdens and provide clarity, but care is needed. Regular provision of benefits, or benefits that appear linked to performance, can fall outside the exemption.

Used correctly, trivial benefits offer a straightforward way for businesses to reward staff in a tax-efficient and low-compliance manner.

While company cars often come with tax implications, there are specific situations where the associated benefits may be exempt. There are circumstances where it can be possible to offer employees car benefits that are exempt from tax.

Exempt expenses and benefits include the following:

• Business-only use: This rule has been the subject of much case law over the years, but it has generally been established that to qualify for VAT recovery the car must not be available for any private use. This means that the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they don’t.
• Adapted vehicles for disabled employees: These cars are exempt if the only private use is for journeys between home and work and for travel to work-related training.
• Fuel paid by employees: The fuel benefit is removed when an employee pays for all their private fuel use or if the employer pays and the employee reimburses the amount (during the tax year).
• ‘Pool’ cars: Employers are not required to pay or report on 'pool' cars. These are cars that are shared by employees for business purposes only and normally kept on your premises. Employers must ensure the ‘pool’ car rules are properly adhered to.
• Privately owned vehicles: Employers do not have to pay anything on cars that directors or employees own privately.

Proper documentation and compliance are required in order to maintain these exemptions.

Employees with company cars may be paying unnecessary tax on private fuel, when reimbursing the cost of private fuel in full can often remove the car fuel benefit charge altogether.

Where an employee is provided with a company car and fuel for private use, the default position is that the employee must pay the car fuel benefit charge. The amount of the charge is calculated based on the car’s CO2 emissions and applied to the car fuel benefit multiplier, which is currently £28,200 and is set to increase to £29,200 for the 2026–27 tax year.

Avoiding the car fuel benefit charge is possible if the employee reimburses their employer for all fuel used for private journeys, a process known as ‘making good’. Private fuel includes all fuel used for commuting to and from work. To do this, employees should keep a record of private mileage and repay their employer using the published advisory fuel rates. These rates are designed to reflect average fuel costs and are updated quarterly.

If properly documented, HMRC will accept that no car fuel benefit charge is due, meaning the employee avoids the income tax liability on the private fuel. In most cases, reimbursing the employer is far cheaper than paying the tax, especially for employees with relatively low private mileage.

The car fuel benefit charge will still apply if it cannot be demonstrated to HMRC that the employee has reimbursed the full cost of fuel used for private journeys, including commuting. To prevent this, employees must maintain a detailed log of private mileage and ensure they make good the cost of all fuel provided for private use.

As an employee, you pay tax on certain company benefits, such as cars, accommodation, and loans. Your employer calculates the tax you owe and deducts it through Pay As You Earn (PAYE). The amount of tax depends on the type and value of the benefit.

Some company benefits are tax-free, including childcare support and meals provided in canteens. Cash payments, however, are treated as earnings and are always subject to tax and National Insurance contributions.

Other taxable benefits you will pay tax on include the following:

Medical Insurance

You usually pay tax on the cost of the insurance premiums if your employer pays for your medical insurance. However, some health benefits are tax-free, including medical insurance while you are working abroad and annual check-ups.

Loans

You may have to pay tax on low-interest or interest-free loans from your employer if the loan is more than £10,000. The tax is calculated on the difference between the interest rate you pay and the official rate of interest set by the Bank of England. You could also be liable for tax if your employer lends money to one of your relatives.

Living Accommodation

If you (or one of your relatives) lives in accommodation provided by your employer, you may need to pay tax. The calculation depends on whether the accommodation costs are more than £75,000. You might not have to pay tax if the accommodation is provided so you can perform your job or do it more effectively, for example, agricultural workers living on farms.

There is a trivial benefit-in-kind (BiK) exemption that applies to small, non-cash gifts (such as a bottle of wine or a bouquet of flowers) that are occasionally given to employees.

This exemption enables employers to offer modest, tax-efficient rewards while simplifying the administration of BiKs. The BiK exemption allows businesses to recognise employees in a small way without creating additional reporting obligations or tax liabilities.

Trivial benefits are a simple and effective way to provide gestures of goodwill or recognition, as long as they are not given as a reward for work performed or duties carried out. Typical qualifying occasions include events such as a marriage, the birth of a child or other personal landmarks.

Employers also benefit since these trivial BiKs do not need to be included in PAYE settlement agreements or reported on P11D forms, and they are exempt from Class 1A National Insurance contributions.

The tax exemption applies to trivial BiKs where the benefit:

• costs £50 or less;
• is not cash or a cash voucher;
• is not a reward for work or performance; and
• is not in the terms of an employee’s contract.

Trivial benefits provided through a salary sacrifice arrangement are not exempt from tax. In such cases, the employer must report them on form P11D, using the higher of the amount of salary the employee gave up, or the cost of the trivial benefit provided.

For directors or officeholders of close companies (and their families), there is an annual cap of £300 on trivial benefit gifts. The £50 limit still applies per gift but allows up to £300 of non-cash benefits per person each year. If any single gift exceeds £50, the full value becomes taxable.