Tax Free Benefits For Care Homes

We are seeing more & more of our care home clients struggling to recruit & retain quality staff. This can be due to many different factors.

Small extra benefits for staff can help an employer to stand out in an ever more competitive recruitment market. There are a few items that can be provided to staff with no tax or National Insurance (NI) implications, these include the following:

  • A mobile phone, where the contract is in the name of the employer
  • Parking at or near the workplace
  • Employer contributions into an employee’s pension
  • Free or subsidised meals (as long as all employees can benefit from this)
  • Trivial benefits; see below:

Trivial Benefits are very strictly defined by HM Revenue & Customs (HMRC) & in order to be exempt from tax & NI the following four conditions must all be met:

  1. The item must no more than £50; this is per item, it’s not an annual limit. (For Directors there is an annual limited of £300.)
  2. It isn’t cash or a cash voucher – a gift card isn’t a cash voucher unless you could get change in cash rather than just leaving the balance of any unspent funds on the gift card.
  3. It isn’t a reward for work or performance. A bunch of flowers on someone’s birthday, is unlikely to be seen as a reward for work or performance, but the same gift given to mark 5 year’s service would be.
  4. It isn’t contractual.

If an employer wants to give an employee a non-cash gift or reward costing more than £50 but without the employee incurring tax & NI, a PAYE Settlement Agreement (PSA) could be the answer.

HMRC have to give their agreement before an employer can use a PSA & the employer must specify what types of benefit they want to include. Under the terms of a PSA, the employer pays the tax & NI on the employee’s behalf when the benefit is provided. The types of benefit that can be included are as follows:

  • Minor incentive awards, for example a reward for being “employee of the month”
  • Small gifts not falling within the trivial benefits exemption

As the payment of an employee’s tax liability would also be a benefit in kind, the tax on this is built into the amount payable under the PSA, along with the employer’s NI liability on the benefit.

From April 2023, the net cost for a company paying Corporation Tax at the main rate, of rewarding an employee liable to tax at the basic rate with a £100 voucher under a PSA would be as follows:

£
Voucher Cost 100.00
Tax 25.00
Employer’s NI 17.25
Corporation Tax Relief (35.56)
Net Cost 106.69

The deadline for applying for a PSA is 5 July following the end of the first tax year that it applies to. The tax & NI must be paid by 22 October following the end of the tax year (or 19 October if a cheque payment is being made).

Mitchells have been supporting the care home industry since 2005, supplying a wide range of sector specific services to operators locally and nationwide. Our team of specialist ‘care home accountants and business advisers’, proactively work with care providers to grow their business, minimise tax liabilities and increase profitability. Whether you are looking to enter this sector for the first time, or expand your existing business, Mitchells dedicated team of care home specialists have all the in-depth knowledge you could ever need to ensure you continue to grow and develop.

If you have any questions, a member of our tax team would be happy to help. Give us a call on 01246 274121 (Option 2) or drop us an email: taxteam@mitchellsaccountants.co.uk