The tax‑free perks league table

Hidden gems

A question we are frequently asked is whether a company can pay for XYZ? XYZ being goods or services that benefit the owner manager rather than the business. In theory your company can pay for almost anything. The issue is the tax treatment of such purchases which will ordinarily be classified as either earnings or benefits in kind.

However, some benefits in kind are actually tax efficient. The ones that are exempt from tax won’t cost you a penny in income tax or NI and, as an added bonus, your company gets a corporation tax deduction for the cost. Let’s rate the most valuable perks for owner managers based on who can use them and the potential savings each year.

5. Your commute - variable

Assuming you need to travel to your office or business premises regularly, you can reduce the cost of your commute. Tax exempt-benefits your company can provide include parking costs, a bicycle and related safety equipment and a workplace charger if you have an electric vehicle.This one isn’t for everyone, hence it’s in fifth place, but if you can use it, the savings soon add up.

Example. Luke works at a city centre office three days per week. The local car park charges £5 per day and if the company pays, Luke saves up to £780 per year.

4. “Trivial” benefits - up to £300

A benefit in kind that costs your company no more than £50 is exempt. The benefit must not be cash or a voucher convertible into cash. A gift voucher is fine because it can only be exchanged for goods or services and not cash.

For directors of close companies and their families, the total cost to the company must not exceed £300 per tax year. The cap prevents it from making our top three tax-free perks.

3. Mobile phone - £600ish?

A mobile phone is an essential purchase these days, especially for business owners. Thankfully the provision of a mobile phone and related services is an exempt benefit. With the latest phones easily costing four figures over the course of the contract, this is a valuable perk. For the exemption to apply, the contract for the phone must be between your company and the service provider. The exemption includes private use too.

2. Interest-free loans - priceless

Your company can lend you up to £10,000 interest free over the course of a tax year. Go over this amount and you’ll pay tax based on HMRC’s official rate of interest. You’ll need to pay it back within nine months of year end, but when you’re in a pinch, an instant, interest-free loan is a huge perk.

1. Pension contributions - up to £60,000

The winner of the league is, of course, employer pension contributions. The most underrated tax perk of all, the exemption allows your company to pay up to £60,000 per year into your pension tax free. Once the cash is invested within the pension fund, it also grows tax free. Once you’re old enough, you can withdraw 25%, you guessed it, tax free.