We look at employment benefits, including reimbursed expenses, and how they are valued and the tax treatment.
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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 on our page NIC on employment benefits and other payments.
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 ‘wholly, exclusively and necessarily’ 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. You can read more about expenses on our page Employment expenses.
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 must 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 Paying tax on employment benefits.
Normally, employees do not pay National Insurance contributions (NIC) on benefits and expenses even if they are taxable, although there are some exceptions.
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 Taxable benefits in kind.
Note that 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.
Some non-cash benefits are completely exempt from tax. For example, your employer may make employer contributions into your pension scheme. We discuss these in more detail on our page Non-taxable payments and benefits from employment.