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This information applies to England, Wales, Scotland and Northern Ireland
What are fringe benefits
Fringe benefits are benefits which employees or directors receive from their employment but which are not included in their salary cheque or wages. On the tax return form they are called 'benefits in kind'. They include such things as company cars, private medical insurance paid for by the employer and cheap or free loans. Some fringe benefits will not be taxed, some will and some will be taxed only for employees who are directors or higher paid.
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Tax-free fringe benefits
Some fringe benefits are tax-free and do not need to be entered on your tax return. These include:-
- contributions paid by your employer into an approved occupational or personal pension scheme for the employee. Nearly all schemes are included
- cheap or free canteen meals, if these are provided for all employees, even if separate facilities are provided for different groups of employees
- in-house sports facilities
- counselling services to redundant employees
- childcare for children aged under 18
- works buses, or subsidies to public bus services, to get employees to and from work
- bicycles and cycling safety equipment provided for employees to get to and from work and workplace parking for bicycles and motorcycles
- the loan by the employer of computer equipment up to the value of £2,000. Benefit in excess of £2,000 will be taxed in the normal way
- luncheon vouchers of no more than 15p a working day
- reasonable removal expenses if you have to move to take up a new job or are transferred by your employer
- genuine personal gifts given for reasons unconnected with the job, for example, retirement gifts other than cash, or wedding gifts
- gifts, other than cash, that you receive from someone other than your employer, for example, seats at sporting or cultural events, providing that any gift or outing is not worth more than £100
- if you are disabled, equipment and facilities provided for you to carry out your job.
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How taxable fringe benefits are valued for tax purposes
For fringe benefits which are taxable, tax is paid on the taxable value of the benefit. The way the taxable value is worked out depends on whether or not you are a higher-paid employee or a director.
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Who is ‘higher-paid’
If you earn £8,500 gross a year or more, you count as 'higher paid' even if you work for only part of the tax year. The value of any of the benefits received must be included in the £8,500, so your salary may be lower than this amount, but you still count as higher-paid due to the value of fringe benefits. Company directors normally count as higher-paid, however much they earn.
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Common fringe benefits
If you get taxable fringe benefits, you must enter the value on your tax return for the relevant year, even if you have already paid tax on the benefit under PAYE and whether or not you count as higher-paid. For more details on how to declare fringe benefits for tax purposes, see under heading How tax is declared and paid on fringe benefits.
The following paragraphs list some of the more common fringe benefits.
Accommodation
Generally, where any employee, whether higher-paid or not, is provided with accommodation either rent-free or for a very low rent, the difference between the rent paid, if any, and the annual value of the property is taxable. Annual value is usually taken to be the same as gross rateable value (though it will be higher if the accommodation cost more than £75,000 when it was bought by the employer).
There are three exceptions to this rule. No tax will have to be paid on the accommodation if:-
- it is necessary for you to live in the accommodation to perform your duties properly; or
- it is provided so that you can perform your duties better than you could without it and it is customary in that type of employment to have accommodation provided; or
- the job involves a special security risk and special accommodation is provided for your safety.
If you have to move because of your job, you may be entitled to relocation expenses - see under Relocation expenses, below.
Additional benefits, for example, free heating or lighting provided with the accommodation, are taxable only for higher-paid employees and directors - see under heading Who is ‘higher-paid’.
Hotels and temporary accommodation
The cost of hotels and temporary accommodation while travelling for business purposes is not taxed. However, if you are given an overall cash allowance to cover these costs, this will be taxed, but anything you spend on accommodation for the purpose of your job can be deducted from your taxable income, as a tax relief.
Company cars
Tax is payable on a company car if it is available for private use by an employee, company director or their family or household. In nearly all cases, private use includes journeys between home and work. The tax charge is lower for cheaper cars, cars with lower C02 emissions and cars that can run on alternative fuels.
Cars which are used only for business, and are not available for private use are not taxable.
Childcare expenses
If you pay childcare costs yourself, you cannot claim these costs as relief against tax. Neither can you claim travel expenses to and from work for childcare reasons.
If you are getting childcare support from your employer under the Employer Supported Childcare Vouchers scheme, you do not have to pay tax or National Insurance Contributions (NICS) on the first £55. This only applies if you are getting vouchers from your employer for childcare, and not if you are getting a cash benefit.
Accepting childcare vouchers from your employer will mean a cut in pay. This could reduce your salary to a sum below the lower earnings limit, and may affect your right to certain benefits.
To find out more about the Childcare Vouchers scheme, and how it could affect your right to benefits, see Benefits for families and children.
Clothing
Work and safety clothes provided by your employer, for example, overalls and protective helmets or shoes, are not liable to tax. However, any normal clothing provided by your employer is taxable.
Council tax/rates
Where your employer pays your council tax (rates in Northern Ireland), you will have to pay tax on it. But, you will not have to pay tax if it is necessary for you to live in the accommodation to do your job.
Credit cards and charge cards
If you use a credit card to purchase goods or services on your employer’s account, you will have to pay tax on the cost to the employer of providing these goods or services. You may be able to claim a deduction for goods or services purchased 'wholly and necessarily' for the purpose of your job.
Fuel
Fuel given by an employer to a higher-paid employee or director (see under heading Who is ‘higher-paid’) for private use is taxable.
Holidays
If you are a higher-paid employee or director (see under heading Who is ‘higher-paid’) and receive a free holiday, you will have to pay tax on its value. Other employees do not have to pay tax on a free holiday as long as the holiday has no resale value and is not convertible to cash, for example, if payment is made direct to a hotel. A payment to a travel agent for a holiday abroad would be taxable.
Job related benefits
Job related benefits are benefits to employees provided from within the employer’s business. They include cheap airline seats for airline staff, cheap rail travel for railway employees and goods or services provided by a business which are offered free or at a discounted price to employees. They are taxable only for higher-paid employees and directors - see above. They do not include company cars and fuel, loans, accommodation or mobile phones, as there are special rules for these items.
Cash allowances given in lieu of job related benefits are taxable for all employees. Payments to miners in lieu of coal, however, are not taxable.
Loans
Interest-free and cheap loans are taxable for higher-paid employees and directors - under heading Who is ‘higher-paid’.
Meals
Meals provided in a staff canteen which is available to all staff, are not taxable and you do not need to list them on your tax return. In addition, if you get free or subsidised meals at work, and the meals are available to all employees, they will also not be taxable and do not need to be listed on your tax return. This extends to tickets or vouchers given by employers for free and subsidised meals where the meals are not provided by the employer.
If the employer gives luncheon vouchers, see under Vouchers, below.
Medical insurance
If your employer provides private medical insurance this is taxable for higher-paid employees and directors.
Mileage allowances
If you get a mileage allowance for using your own car, van, motorbike or bicycle for work journeys, these payments are not taxable as long as they are within limits set by the government. The limits are called approved mileage rates. Information about current approved mileage rates can be found on the website of HM Revenue and Customs at: www.hmrc.gov.uk.
Tax-free mileage allowances apply only to work journeys, that is, journeys you have to make in the course of doing your job. Work journeys include, for example, delivering goods or making calls to customers. They do not include journeys to and from your normal workplace.
You can find more information about using your own vehicle for work on the website of HM Revenue and Customs at: www.hmrc.gov.uk.
Relocation expenses
If your employer pays your removal expenses up to £8,000, this is tax-free. This limit applies per move. You can find more details on the HMRC website at: www.hmrc.gov.uk/guidance/relocation.htm.
Shares
In most cases, the value of shares transferred to an employee or director at a discount is liable to tax.
If you need further advice on how shares are treated for tax purposes, consult a specialist adviser, or see Help with tax problems.
Training
If you are on a full-time or sandwich course at university or college which lasts one year or more with an average of at least 20 weeks full-time attendance, you can get up to £7,000 pay tax-free whilst you are still on the course.
If your employer pays for your training course in order to retrain you for another job, the value of the payment made by the employer is not taxable.
For more details, see Tax reliefs (excluding self-employed people).
If your employer pays for an external training course which is not intended to train you for another job with the same employer, you will not be liable to pay tax on this payment if:-
- the course is for general education and you are aged under 21 when the course starts; or
- the course is related to your job and you are going to be away from work on the course for less than 12 months.
If you pay for an external course which you attend whilst still being paid your usual wages, you may be able to claim tax relief.
For more details about tax relief and training, see Tax reliefs (excluding self-employed people).
Travelling expenses
If your employer reimburses you for the costs of travelling to and from work or pays these direct, for example, by buying a season ticket for you, the value of this benefit is generally taxable. However, you can claim tax relief on any travelling expenses paid by your employer to cover the cost of journeys made by you as a necessary part of your job, excluding journeys to and from work. For tax treatment of mileage allowances, see under Mileage allowances, above.
Vouchers
If you get vouchers, including luncheon vouchers of more than 15p a day and cheque vouchers which are exchangeable for goods and services, you will be taxed on the cost to your employer of providing the voucher and these goods and services. Cash vouchers, such as Holiday Stamp schemes used in the building industry, are subject to tax in all cases. If the voucher can be exchanged for cash, the tax will generally be paid through PAYE as if it were a payment of cash.
For information about vouchers for childcare expenses, see under Childcare expenses, above.
Overnight expenses
If you stay away from home overnight on business and incur personal expenses, for example, for newspapers, telephone calls home, or laundry, you can have these expenses reimbursed by your employer without the payment being taxable. The limit for non-taxable reimbursement is £5/night for stays in the United Kingdom or £10/night for stays elsewhere.
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How tax is declared and paid on fringe benefits
If you get any taxable fringe benefits, you must enter their value on your tax return for the relevant year, even if tax has already been paid on them under PAYE. Your employer also has to make a return to the tax office with details of any fringe benefits given to you. Your employer makes the return on the form P11D, which lists the benefits and expenses for the relevant tax year. You should get a copy this form by 6 July following the end of the tax year.
Fringe benefits may be taxed under PAYE by being offset against personal tax allowances in your PAYE code. Otherwise, tax will be collected after the end of the tax year by the issue of an assessment on the fringe benefits.
For more information about PAYE, see The Pay As You Earn (PAYE) system.
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