The tax free perks we see most often used by small business owners are pensions, child care vouchers, mobile phones, bicycles and annual parties.
Pension payments for directors and employees
For owner managed businesses it is better to pay company pensions (employer contributions) than personal pensions (employee contributions). This is because employer contributions avoid any income tax, national insurance or dividend tax. Whereas employee contributions avoid only income tax. In broad terms, employer contributions are generally limited to £40,000 per year, whereas employee contributions are limited to earnings.
We can’t advise whether you should invest in a pension or not. We can advise on the tax savings and situation in detail for you.
For a company to get tax relief on pensions in any given tax period, the contribution must be actually paid within that period.
Child care vouchers
Child care vouchers (or payments directly to child care providers) can be paid by a company. These can be free of tax and national insurance if criteria is met:
- £55 per week limit for basic rate employees only (higher rate £28 and additional rate £25).
- The childcare provider must be registered under the Childcare Act 2006 on the Ofsted Childcare Register.
- The childcare provider must state in the Ofsted registration the place where they will be providing the childcare.
- The company can make your own voucher, you don’t have to use a voucher scheme website.
- You must not reimburse the employee for the childcare as this would be taxable on the employee
A company can provide a director or employee one mobile phone. As long as the mobile phone contract is a business contract AND is in the name of the company, then the employee is not subject to tax or national insurance on the benefit of having the phone. This is regardless of the levels of private or business use of the phone.
Cycle to work
A bicycle and associated safety equipment can be provided by a company with no tax and national insurance arising. The bicycle must be used “mainly” for commuting or business journeys. The scheme must be open to all employees, though not all employees have to take up the offer of the bicycle.
An annual party can be a summer party, Christmas party or even end of financial year party. It can’t be a one off event or a quarterly event, as neither would be “annual”. An annual party can be tax free if criteria is met. The criteria includes there being a cap on costs of £150 per head.