Small business owners often feel duty bound to increase salaries on a yearly basis. But one alternative is to offer an additional benefit rather than hard cash. Each of these is tax free to the employee and tax deductible for the company:
The provision of a mobile phone carries no tax liability for either the employee or the company. The cost of the mobile phone will reduce the company’s corporation tax bill as long as the bill in the name of the business rather than the employee. The benefit is not reportable on a P11d of the employee.
Companies are allowed to offer free car parking and repayment of business mileage at the HMRC approved rate (45p for first 10,000 miles, 25p thereafter) without adverse tax implications for the company or the employee. The cost of providing these benefits is also deductible against the business corporation tax bill.
Pension contributions to a registered scheme can be a very effective tax free incentive for an employer to provide. Employers’ pension contributions can generally be claimed as an allowable expense against corporation tax. In addition, neither employers nor employee’s national insurance contributions are payable. Having a scheme in place also means that directors can pay a pension contribution to reduce their personal tax liability, which may be particular of benefit if the director is a higher rate tax payer.