Employment benefits and expenses
We look at employment benefits and expenses, how they are valued and the related tax treatment.
Employment benefits and expenses: know the rules
There is a common misconception that non-cash employment benefits are tax free. Indeed some are tax free, but others are not, so it is important to know the rules.
If you are an employee and your employer gives you non-cash benefits, they can be treated as additional income and you might have to pay tax on the benefits. Alternatively, if the benefit has been provided to you as part of a salary sacrifice scheme, you may pay tax on the salary given up rather than the value of the benefit. You can read about such arrangements at our paragraphs dealing with salary sacrifice.
If you are an employee and your employer pays or reimburses your expenses, you may have to pay tax on the payments. But if they are expenses incurred as part of your job, you should get automatic tax relief.
If you are an employee and incur expenses in connection with your employment that are not paid or reimbursed by your employer, you may be able to claim tax relief on them provided that you are a taxpayer.
Normally, employees do not pay National Insurance contributions (NIC) on benefits and expenses even if they are taxable, although there are some exceptions.
What are employment benefits?
If you are an employee, your employer may provide you with non-cash benefits, for example a mobile phone or company car, in addition to your normal wages. These non-cash benefits are sometimes called benefits-in-kind or perks of the job.
You have to pay tax on some of these benefits and there are usually special rules to work out the amount or value of the taxable benefit. You can read about how tax is collected on these benefits on the page How is my tax collected?.
Some non-cash benefits are completely exempt from tax.
What is the value of the taxable benefit?
The rules say that, generally, the taxable value of a benefit is the ‘cash equivalent’ value. This is usually the amount it costs your employer to provide you with the benefit, less any part of that cost paid by you. The main exceptions to this rule are company cars, living accommodation and cheap loans where special valuation rules apply. You can read more about this on the page What are benefits-in-kind?. Note if you have been provided with the benefit as part of a salary sacrifice arrangement, you may instead be taxed on the salary given up rather than the value of the benefit.
What are employment expenses?
Certain paid or reimbursed expenses are automatically exempt from tax and NIC provided they qualify and are not part of a salary sacrifice arrangement. This effectively means that employers do not have to declare paid or reimbursed expenses to HMRC and there are no tax or NIC consequences for you or your employer.
Expenses qualify if they are of a type that would otherwise be deductible in the hands of an employee – see our guidance on this page. It can also apply to subsistence expenses paid or reimbursed during the course of business travel where the employer pays them at scale rates - provided they check that the business travel has been undertaken.
Some expenses are exempt from tax/NIC under different rules if paid or reimbursed by an employer – for example, business mileage or personal incidental expenses if staying away from home on business.
If your employer does not pay or reimburse your expenses, you may be able to claim certain expenses as a deduction against your employment income and get tax relief as long as you are a taxpayer.
There are various rules governing the tax treatment of deductible employment expenses.
You can find information on What if I incur expenses in connection with my job?, What travel expenses can I claim? and What if I use my own car for business purposes? in the next few pages.
What information can I find in the employment benefits and expenses pages?
In this section we cover the following topics:
- What are benefits-in-kind?
- What payments and benefits are non-taxable?
- What if I incur expenses in relation to my job?
- What travel expenses can I claim?
- What if I use my own car for business purposes?
- Payroll giving
- Allowances and expenses paid to armed forces personnel and deductions from their income