Bank your tax-free perks before 6 April

The issue

Since April 2016 employers have been able to provide any number of small (limited to £50) perks to their employees without them being taxable. Although this rule is restricted for directors of close companies (those controlled by five or fewer individuals) such directors can still benefit from six £50 benefits per year.

 

Making the most of it

Helpfully the rules do not prevent the exemption from being used many times within a short space of time. Therefore for those directors who have not made use of this they have five weeks to do so. Married couples who are also directors will be able to benefit from £600 of tax-free benefits, which will give rise to £270 of tax savings for 45% taxpayers in addition to national insurance savings. For family companies with many directors, clearly the savings can be more.

 

Avoid cash payments or equivalent

Although this exemption cannot be used to make cash payments or to pay personal bills of the directors, it can be used for retail vouchers (which depending on shopping habits are very like cash).

 

Timing of benefit

If vouchers are provided then any benefit is treated as arising when the employer provides the vouchers rather than when they are used. When we are considering directors it may be prudent to work on the basis that benefits are provided when the company acquires them.

 

Final comment

Although there is still time for directors (who have not to date taken any perks) to take £300 of benefits before 5 April 2019, next year it would make sense for them to spread them out. Furthermore, if multiple perks are given within a small space of time then it would be important for them to be distinguishable from each other. For example perhaps an Amazon voucher could be provided on a Monday, with a Tesco voucher being provided on a Friday. This should limit the risk of HMRC seeking to link the perks together and deny the tax exemption.

 

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