Employment and tax

58 Pay employees £5 tax free each time they need to stay away from home overnight. This is in addition to the cost of accommodation and meals that can be reimbursed if receipts are produced. If the overnight stay is abroad, the tax-free amount is £10 a night.

59 Reward your faithful employees for long service. When a staff member has been employed by your business for at least 20 years, you can recognise that long service with a tax-free gift worth up to £1,000 – or £50 for every year of service. The gift must not be cash or vouchers, but it can be shares in your company or any other tangible object. You can present such a gift to the same employee every ten years, but not at more frequent intervals.

60 Set up a tax-free bonus scheme for good ideas from employees. Your employees might have valuable insights into how products, services, processes or systems can be improved. If you pay a bonus to employees who come up with a good idea, that pay would normally be taxed in the usual way. But if you set up a suggestion scheme, you can pay employees £25 tax free for the best ideas, and up to £5,000 tax free if the suggested improvement creates a significant amount of financial benefit for your business.

61 Set up a tax efficient share scheme for employees. Share schemes can create a taxable benefit for employees, but if share options are granted under an approved Enterprise Management Incentive scheme, there is no tax payable by the employees until the shares are sold. Structured correctly, the tax payable could be as little as 10% of the gain on the shares.

62 Where you use the services of a self-employed contractor, ask them for a mandate. That is an irrevocable undertaking that the person will not ask HMRC for a refund of the tax they have paid on their income from you in the event that HMRC decides they should have been treated as employees and requires you to pay tax under PAYE for them. If they give you a mandate, the tax they have paid as self-employed individuals can be set against the employer’s PAYE.

63 Pay for your employees’ eye tests if they have to use a computer, and also cover the cost of any lenses prescribed to use the equipment. The employees will not be taxed on these costs, but the tax relief does not include spectacle frames or such features as tinting, which do not relate to the computer use. Even shareholder directors can benefit from this.

64 Reimburse the costs of a new employee’s removal expenses. You can reimburse up to £8,000 of a new employee’s moving costs tax free if they have to move house to take up the job. If you pay more than this amount, the excess is taxed as part of the employee’s salary. This tax relief only applies if the new employee does not already live within a reasonable daily travelling distance of their new place of work.

65 Buy your employees tax free driving lessons to improve their skills. Where your employees are required to drive as part of their job, safety must be a priority. Driving lessons to improve your employees’ skills could cut your insurance and the tuition fees are fully tax-deductible for your business. Your employees are not taxed on the value of the driving lessons, because the instruction should qualify as work-related training.

66 Reimburse employees who work from home for the extra energy they use in their home while working for you. This extra amount of energy consumed is generally difficult to calculate, so you can pay up to £2 a week free of tax with no additional evidence. If the employee can prove their additional home heating and lighting costs are more than £2 a week, you can pay that extra amount tax free as well.

67 Provide your employees with free bicycles and associated safety equipment so that they can cycle to work. As long as the bike and safety equipment remains the property of the employer, there is no tax charge for the employee, and the cost is fully tax deductible for your business.

68 Provide a free breakfast to all your employees who travel to work by bicycle on a designated ‘cycle to work day’. These meals would normally be a taxable benefit because they are not provided to all workers, but they are tax free if eaten by the cyclists when they arrive at work. You can designate any number of working days as ‘cycle to work days’ as long as this is made clear to the whole workforce.

69 Encourage car sharing with tax-free payments to employees. When your employees travel to work-related training courses or make other business journeys, pay the drivers an extra tax-free 5p a mile for each fellow employee they carry.

70 Provide your employees with a free works bus, or subsidise an existing local public bus service. Paying for employees to get to work is normally a taxable benefit, but the provision of a works bus is tax free if the vehicle is designed to carry at least nine passengers. The bus can also be used to take employees to the local shops at lunch time with no additional tax charge.

71 Check how much you claim for the fuel you use on business trips in your company car. Employers can now pay up to 16p per mile tax free (depending on the size of the car) to employees who pay for the fuel used in the company car they drive. If your company has any cars that are not very fuel efficient, you can negotiate a higher tax-free mileage rate with the local tax office.

72 Don’t forget to party! Even the smallest business can host an annual tax-free social function for all its staff, even including the directors and their partners. As long as the cost per head is less than £150, the employees are not taxed for having a good time and the company benefits from full tax relief on the expense.

73 Pay for your employees to have a medical check-up as a tax free benefit, perhaps instead of a taxed cash bonus. Be careful that you do not offer the check-ups on a discriminatory basis, such as only to those aged over 50, or male.

74 Supply your employees with tax-free mobile phones. Mobile phones provided to employees are tax free, as long as it is the employer rather than the employee who owns the phone and takes out the contract with the telecoms company. Since 6 April 2006, employers can only provide one tax-free mobile phone to each employee.

75 Pay employees who are parents partly with childcare vouchers which they can use to fund nursery and after school care. The first £55 a week paid as childcare vouchers is free of both tax and NIC in their hands and you do not have to pay employer’s NIC on the value of the vouchers. You have to offer the childcare vouchers to all your employees who work at the same site, and the vouchers must not be exchangeable for cash. Beware of the impact on employees’ child tax credits.

76 Get paid for filing tax returns over the internet. If you have fewer than 50 employees and you submit your 2006/07 end of year PAYE return to the Revenue using the internet, you will receive a tax-free cash incentive of £150. The incentives for the next two years will be lower. If you make your monthly PAYE payments to HMRC by bank transfer, you benefit from an extra three days to pay the funds into the Revenue’s bank account. Filing your VAT return online will not provide a cash incentive but you do get up to 10 extra days in which to settle your VAT bill.

77 Student employees do not have to pay income tax on their holiday earnings of less than £5,035, if they sign a form P38S confirming that they will continue to attend university until after the following 5 April. However, the employer must deduct national insurance contributions for students who earn over £97 a week (for 2006/07).

78 Set up a payroll giving scheme for your employees before 31 December 2006 and as a small business you can claim a grant of up to £500. Your employees will get tax relief on their donations to charities made under the scheme. What’s more, the government will match the first £10 a month given by each employee for the first six months of the scheme.

79 Reduce your P11D hassle with a dispensation. Agree a dispensation with the Revenue so you do not need to report regular business expenses paid to directors or employees on the annual tax forms P11D or P9D. The details of what expenses and benefits can be covered by the dispensation and how to apply are set out in the HMRC leaflet P11DX. Even one-person companies can obtain relief from recording receipted expenses.