Where the car is provided by the employer, the employee is taxed on the ‘cash equivalent’, calculated as a percentage (based on its CO2 emissions) of the vehicle’s chargeable value.
The chargeable value is the vehicle’s list price when new plus the cost of most accessories added, less any capital contribution of up to £5,000 from the employee.
The employer must also pay Class 1A NIC at 13.8% on the cash equivalent amount of the benefit.
The percentages for petrol cars apply to diesel cars that meet the RDE2 standard.
Car fuel benefit
Where fuel is provided by the employer for private use in a company car, the percentage used to calculate the car benefit is applied to the benefit multiplier in order to determine the taxable benefit.
The benefit is charged without reduction for contributions by the employee, unless all private fuel is paid for (in which case there is no benefit). This must be done by 6 July following the end of the tax year, unless the fuel benefit is “payrolled”, in which case the deadline is 1 June following the end of the tax year.
Where the employer provides the car and the employee provides the fuel, HMRC’s advisory fuel mileage rates can be used to reimburse the cost of fuel used on business journeys. Those rates are updated each quarter and published at www.gov.uk/government/publications/advisory-fuel-rates.
Zero emissions van
If the private use of a van is restricted to home-to-work travel, there is no tax charge, unlike for company cars.
Official interest rate
Where the total amount loaned to the employee exceeds £10,000 at any point in the tax year, the cash equivalent benefit is the excess of the official rate over any interest actually paid by the employee to the employer (provided there is a contractual agreement to pay that interest).
Loans from a close company to directors or shareholders of the company may also generate a tax charge for the company.
Tax-free mileage allowances
Employee’s own transport
per business mile
Cars, first 10,000 miles
Cars, over 10,000 miles
Passenger must be completing the same business journey.
For all except the business passengers allowance, if the employer does not pay the full mileage rate, the employee can claim tax relief on any shortfall from HMRC.
Childcare vouchers and Tax-free Childcare (TFC)
Childcare vouchers – Weekly exempt amount
Basic rate taxpayer
Higher rate taxpayer
Additional rate taxpayer
The employer-provided childcare voucher scheme closed to new entrants on 5 October 2018.
Employees who joined the scheme before 6 April 2011, and are still employed by that employer, continue to receive a benefit of £55 per week, whatever their marginal rate of tax.
Tax-free Childcare (TFC) accounts are now available to all eligible parents. You cannot use TFC if you are receiving childcare vouchers.
Under TFC, where both parents work and earn a specified minimum income (but neither earns more than £100,000 per year), they are able to put up to £8,000 a year per child into an account, which the Government will top up with 25p for every £1 contributed by the parents.
A TFC account can be used to pay for childcare for a child aged 11 and under, except for disabled children, where the limits are doubled and contributions can continue up to the age of 17.
Unlike the voucher scheme, TFC is available to the self employed.
Employee share schemes
Type of share scheme
Share Incentive Plan (SIP)
Free shares worth up to £3,600pa. Employee can buy up to £1,800pa out of pre-tax pay. Employer can match bought shares with up to two more.
If shares left in the scheme for at least five years: no Income Tax or CGT on the value when they leave the scheme. Gains on disposal are subject to CGT.
Enterprise Management Incentive (EMI)
Trading companies with fewer than 250 employees and assets up to £30m can grant options to selected employees to buy up to £250,000 worth of shares.
No Income Tax or NIC if option is exercised within ten years of option grant. Shares qualify for 10% rate of CGT on disposal if grant is at least two years before disposal.
Company Share Option Plan (CSOP)
Share options to buy up to £30,000 of shares can be granted to employees.
No Income Tax or NIC if option is exercised between three and ten years of grant. Gains on disposal are subject to CGT.
Save As You Earn (SAYE)
Employees contribute up to £500 a month to a savings scheme, and use money to exercise share options.
No Income Tax or NIC if option is exercised three years or more after the grant of option. Gains on disposal are subject to CGT.
Generally, employees are charged to Income Tax on the value of shares that they are given or are issued to them by their employer, less any amount paid for the shares. NIC are also charged if the company is quoted, or the shares can be easily sold. If the employer operates one of the above tax-advantage schemes, the tax charges may be eliminated, reduced or deferred.
The employer must register the share scheme with HMRC, using the online Employment Related Securities (ERS) system, by 6 July following the end of the tax year in which the scheme is implemented.
Employers must file an annual return for each share scheme online through ERS by 6 July each year.
The above is a very brief summary of the main tax advantaged share schemes; other conditions apply.
Main exempt benefits
Limit of exemption
One per employee
For all employees in a staff canteen
Must be used only or substantially by employees or their children