What are the tax reliefs for residual charge for benefits, exempt benefits, and allowable deductions for an employee working in a register Ltd UK company?


04 Jan

In case of some benefits, there is a residual charge which is usually equal to the benefits cost. Similarly, there are some benefit which are exempt from tax such as the expenses of removal and the facilities of sports, subject to some particular limits. These type of benefits will be discussed in the blog along with the allowable deductions which include their general principles, insurance and liabilities and the expenses of travel incurred by the employees after forming a limited UK company.

Residual Charge for Benefits

The subject of a residual charge is the taxable value of other benefits. Generally, the taxable cost of a benefit is the value of the benefit minus any portion of that cost made good by the employee to the people providing the benefit.

The residual charge is applicable to any benefit provided for a family member of the employee or the employee himself or household, due to employment once the employer buy a limited company from companies house. An exception exists in which case the employee is an individual and the benefit is provided in the normal course of the domestic, personal or family relations of the employee.

This rule is not applicable to the taxable benefits whose provision is done to the excluded employees. The taxation of these employees is done only on the second hand value of any benefit whose conversion could be done into money.

Benefits Exempt from Tax

There are numerous benefits which are exempt from tax. These involve:

  • Gifts containing goods or vouchers that can be exchanged for goods, acquired from third parties and not provided by the employer or a person in connection with the employer if the net cost (inclusive of VAT) of all the gifts to the same employee from the same donor in the year of tax is £250 or less than that. If the limit of £250 is crossed, then the taxation of the full amount can be done, and not only of the excessive amount.
  • Provision of entertainment to employees by third parties which are genuine (such as seats at cultural or sports events), even if its provision is done by giving a voucher to an employee.
  • The awards being non-cash in nature for long service if the period of service was 20 years or more, no similar award was made to the employee in the last 10 years and the price is not more than £50 each year of service.
  • Awards under the schemes of staff suggestion in the case if:

  • There is a formal scheme, which are open to all employees on equal terms.
  • Either the award is less than £25, or the award is only made after the decision for the implementation of the suggestion.
  • The sharing of awards of more than £25 is done on a reasonable basis between two or more employees putting forward the same type of suggestion.
  • The suggestion is noted to be outside the scope of the normal duties of the employee.
  • Awards of more than £25 give the reflection of the financial importance of the suggestion to the business (after that business has completed business formation UK requirement) but, and either are not more than 50% of the total financial benefit expected during the implementation’s first year or are not more than 10% of the financial benefit expected over a period of up to five years.
  • If an award is more than £5000, then the taxation of this excess is always done.

  • The first £8000 of the expenses of removal in the case if:

  • The employee is not already resident within a reasonable daily distance of travelling of their new place of employment, but will be a resident after moving.
  • The expenses are suffered or the benefits provided by the ending of the year of tax after the tax year of the beginning of employment at the new location.
  • Any childcare.
  • Assets or services being used in in the performance of the duties of employment provided any private usage of the concerned item is insignificant. For example, this exempts the benefit occurring on the private usage of tools which are provided by the employer.
  • Equipment for the safety of bicycles or cycling in order to enable employees to get to work and get back from work or to travel between a single workplace to another. The equipment should be available to the employees of the employer general. Also, it should also be utilized mainly for some journeys.
  • Up to an amount of £15,480 a year which is paid to an employee who is no full time course which is to last at least for a year, with an average full time attendance of at least 20 weeks each year. If the limit of £15,480 is crossed, then the taxation of the entire amount can be done.
  • Car fuel coupons or air miles acquired as a result of expenditure of business (after that business has completed business formation UK requirement) but brought into usage for private purposes.
  • Recreational or facilities of sports provided to the employees in general and not to the common public, unless their provision is done on domestic premises or they consist of the usage of any mechanically propelled vehicle or any overnight accommodation. The vouchers which can only be exchanged for such purposes are not included but the membership fees for the sports clubs is liable to tax.
  • Some minor benefits including the welfare counselling in case if the concerned benefit is available to the employees in general.
  • Parking at workplace.
  • The costs related to training of work etc. This consists of the costs of the assets and material used for training either made during the course of training or incorporated into anything so made.
  • The cost suffered on the buses and mini buses used at work. Also, the subsidiaries to public bus services. A bus at work should have a seating capacity of 12 or above and a mini bus at work must have the capacity of 9 or above, but less than 12 and their availability should be confirmed to employees of the employer in question. The main usage of the bus or the mini bus should be by the employees for journeys to and from work and for journeys within the places of work.
  • The private usage of a single mobile phone (that can be a smart phone). The top-up vouchers for the exempt mobile phones are also free from tax. If the provision of more than a single mobile phone is done to an employee for his private usage, then only the subsequent or the second phone is a benefit liable to tax.
  • The expenses of the staff parties which are in general, open to the employees under the condition that the price per head per year (inclusive of VAT) is equal to £150 or less. The limit of £150 can be divided between various parties.
  • Cheap loans that are not more than the amount of £5000 at any time in the year of tax.
  • The contributions of the employer towards additional costs of household as suffered by an employee who works entirely or partly at home. The payments up to an amount of £4 per week (or £18 per month in the case of the employees who are paid every month) may be made without the requirement of a supporting evidence or proof. In case where the payments are more than the mentioned amount, there is a need of a supporting evidence that the payment is entirely related to the additional expenses of household.
  •  The costs of transport/overnight where the disruption of the public transport takes place by some industrial action, late night taxis and the cost of travel suffered where the arrangements for sharing a car break down unavoidably.
  • The uniforms provided by the employer that the employees must wear as a part of their duties.
  • The premiums of private medical insurance whose payment is made to cover the treatment when the employee is not inside the UK in order to perform their duties. The taxation of other premiums or medical insurance is done as is the cost of medical treatment and medical diagnosis excluding the checkups done on a routine basis. There is an exemption in the case of eye tests and the glasses for employees making use of the VDUs.
  • The accommodation related to job.

In the case where the provision of a voucher is done for a benefit which is not included in the income tax charge, there is an exemption for the provision of the voucher itself.

Allowable Deductions

In order to be deductible, the expenses must be for the qualifying travel or exclusively, entirely and mandatorily suffered.

While calculating the net earnings liable to tax, some specific expense is to be subtracted that includes:

  • Contributions made to the registered occupational schemes of pension, within some specific limits.
  • Payments made for some specific liabilities in relation with the employment and for insurance against them
  • Relief in the case of mileage allowance.
  • Subscriptions given to the professional bodies on the list of bodies which is issued by HMRC including most of the UK professional bodies, if relevant to the employment’s duties.
  • Payments made to the charity according to the payroll deduction scheme operated by an employer.

In alternate cases, the allowable deductions become notoriously hard to acquire. They are restricted to qualifying expenses of travel, capital allowances on the plant and machinery (other than cars or other conveyance) provided necessarily for use in order to perform the duties and some other expenses that the employee should incur and make a payment of them as holder of the employment which are suffered exclusively, entirely and necessarily in order to perform the duties of the employment.

Insurance and Liabilities

After forming a limited UK company if a director or an employee, suffers a liability in relation to their employment or makes the payment of an insurance against such a liability, then the cost is an expense which can be subtracted. If the employer makes the payment of such amounts, there is no benefit liable to tax in this case.

A liability which is related to employment is the one whose imposition is done in respect of the acts or omissions of the employee. Hence, for example, liability for negligence can be covered. The related costs such as the cost of legal proceedings are also included.

In order for the insurance premiums to qualify, the policy of insurance should not last more than a duration of two years (though it may be renewed for up to two years at one time), and the person of insurance or the insured person should not be required to go for its renewal. The insurance policy should also cover the liabilities which are related to employment, vicarious liability related to the liabilities of the employment of another person working in a register Ltd UK company, the related costs and the payments made to the own employees of the employer in respect of the employment liabilities in relation to the employment and other relevant costs.

Expense of Travel

There is no availability of the tax relief in the case of the normal commuting costs of the employee, which means that there is no relief when the employee wants to get to work from home or vice versa. However, the employees do have an entitlement of relief for the expenses of traveling which are basically the full costs that they should incur and make the payment of, as the holder of the employment in travel in the performance of their defined duties or journeys to or from a place which is mandatory for them to visit as a part of the performance of their duties (other than a non-temporary workplace).

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