Non-taxable benefits

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Non-taxable benefits
  • Employer’s pension contributions
  • Mobile phone
  • Childcare
  • Workplace
  • Hospitality and awards
  • Trivial benefits
  • Homeworking
  • Qualifying removal expenses
  • Other tax exempt benefits
  • Optional remuneration arrangements

A good way for employers to incentivise staff is to provide benefits which are exempt from tax and national insurance. Not only is it free for the employee, it is also cheap for the employer as no employer’s national insurance is due and the cost of the benefit is deductible from the profits of the business for tax purposes.

If a benefit is exempt from tax, it is not reportable on the form P11D or the Tax Return (but see the end of this guidance note for benefits provided in connection with an optional remuneration arrangement).

There is a long list of benefits which are exempt from income tax and national insurance. The most common are outlined below.

In the majority of cases, the national insurance exemption follows the income tax exemption, but this is not always the case.

Remember that, as with any other kind of employment reward, if the benefit is provided by a third party, rather than the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, Part 7A apply, as those rules have priority over most of the other rules for taxing employment income. However, the good news is that even if a third party is involved, if the benefit is exempt from income tax under ITEPA 2003, Part 4 it is not caught by the disguised remuneration rules. For more on disguised remuneration, see the Disguised remuneration ― overview guidance note (subscription sensitive).

ITEPA 2003, s 554P
Employer’s pension contributions

Contributions made to the employee or director’s pension by the employer are exempt from income tax and national insurance provided the scheme is a registered pension scheme. This is a valuable benefit for employees.

ITEPA 2003, s 308; SI 2001/1004 Sch 3, Part VI, para 2

Therefore, if an employer pays into either an occupational pension scheme

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