Employee Benefits

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.
 

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.

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 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.

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.