A lot of employers acknowledge the work employees do and want to reimburse them for their time in order to maintain a good working relationship. However, there are many misconceptions amongst employers when it comes to Income Tax and National Insurance on expenses and benefits provided to employees.
Here are some examples of the most common misconceptions employers have.
Employer: “I have given my employee £40 to fill up their personal vehicle because they have used it a couple of times for business journeys. They have used their vehicle for business purposes so there is no tax due.”
Where the employer gives money to an employee, this will fall to be taxed under PAYE and will also be subject to National Insurance. The correct way to avoid this liability is to reimburse employees for business mileage where the employee submits a mileage claim for the distance of the journey. Any amounts paid up to the approved mileage allowance payments, will be exempt from both Income Tax and National Insurance.
Employer: “I give my employee £10 per month towards the cost of their personal mobile phone as they also use it for business purposes. Mobile phones are exempt benefits so there is no tax due.”
Once again this is a misunderstanding. Cash has been given to the employee so it is subject to both PAYE and National Insurance through payroll. Where an employer provides an employee with a mobile phone, where the contract is arranged and paid for by the employer, this is an exempt benefit from both Income Tax and National Insurance.
n Matt Herd is an associate director at Duncan and Toplis’ Boston office.
For more information contact Matt Herd at our Boston office by emailing firstname.lastname@example.org or calling 01205 310 250.