Long service awards
Long service awards can be made free of tax to directors and employees as testimonials to mark long service within certain limits. The award can not be made in cash but can be an item of reasonable cost, or of shares in an employing company (or another company in the same group). The exemption only applies when the relevant period of service is not less than 20 years and no similar award has been made to the recipient within the previous 10 years. HMRC consider reasonable cost to be where the cost to the employer does not exceed £50 per year of service. Awards can be made at earlier intervals of long service but these would be taxable. The employer could, however, chose to settle the tax liability on these via a PAYE Settlement Agreement (PSA). Rewarding loyalty always goes down well – doing it in a tax free form? Priceless!
Annual parties or similar functions
We all know about annual parties at Christmas but did you know that there is also an exemption for alternative functions of a similar nature, such as an annual dinner dance or summer barbeque? Provided these are open to staff generally and cost no more than £150 per head to provide, they are free of tax. Where there is more than one annual function and their total cost per head exceeds £150, only the functions that total £150 or less will not be taxed. The £150 per head limit is available per attendee and is also available to partners of employees attending such an event. The limit includes VAT and the costs of transport and/or any overnight accommodation if these are provided to enable employees to attend. As the weather improves maybe think about throwing a summer barbeque. Hot dog anyone?
Salary sacrifice
It was rumoured that these arrangements wouldn’t survive the budget but they did. Many employers will offer benefits on a salary sacrifice basis. The benefit to the employee is that they cover the provision of the benefit out of pre tax salary. The benefit to the employer is a saving of employers NIC on the gross sum sacrificed as part of the arrangement.
Salary sacrifice arrangements are effective when the contractual right to cash remuneration has been reduced. For this to happen the employment contract must be effectively varied before the changes are implemented. Any right to receive cash wages/salary must be given up before the employee is entitled to receive the remuneration. Close scrutiny is given by HMRC of the documentation around salary sacrifice arrangements so it is vital to take full professional advice in this area. Of course you know exactly who to call to help with this…………
If there are any issues raised in this Budget that you would like to discuss in more detail, or if there is anything we can help you with, please contact Price Bailey's Tax Team.
Please click here for all our updates and coverage of the Summer Budget 2015.
Jacqui Gudgion
Senior Tax Manager