A typical remuneration package - UK employment and some tax implications

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An attractive remuneration package can include any of the following:

  • Salary
  • Reimbursement of expenses
  • More generous expenses - business travel in first or business class, or a better quality hotel on business trips
  • Bonus or profit related award schemes
  • Share incentive arrangements
  • Pension provision
  • Childcare
  • Life assurance and/or healthcare
  • Choice of a company car or additional salary and reimbursement of car expenses for business travel in your own car
  • Mobile phone
  • Contributions to the additional costs of working at home
  • Other benefits in kind including, for example, an annual function costing not more than £150 per head, or long service awards

Of course, negotiating the appropriate package is a matter for you and your employer, but you should seek our advice to ensure that your overall package is as tax and NI efficient as possible.

Expense payments

Your employer is required to report expenses payments to HM Revenue & Customs on form P11D each year. To avoid paying tax on these payments you have to claim a deduction on your Tax Return - your employer will provide you with a copy of your 2012/13 P11D by no later than 6 July 2013.

This cumbersome process of reporting and then claiming expenses paid may be avoided if your employer has been granted a dispensation. Expense payments covered by the dispensation do not have to be reported to HM Revenue & Customs and they do not have to be included, with a counter-claim, on your own Tax Return. Payments covered by dispensations will be subject to review from time to time, including in the course of an HM Revenue & Customs inspection visit.

You may be able to claim tax relief for other expenses you incur in connection with your job, but the rules are very restrictive, and you may not always be able to claim for expenses you regard as reasonable work related expenditure.

Travel and subsistence

The rules which allow tax relief for travelling and subsistence expenses are quite complex, and subtle differences in your working arrangements can change the amounts which you are able to claim, or can be paid tax free. You will not normally be able to claim for the cost of travelling to your normal place of work, but if you have more than one place of work, sometimes travelling expenses are tax deductible when travelling to a temporary place of work for up to 24 months.

Site-based employees are able to claim a deduction for travel to and from the site at which they are working, plus subsistence costs when they stay at or near the site subject to meeting certain conditions.

Because the tax impact on your travelling expenses can be quite significant, you should ask for help if you are considering a change involving a long commute to work.

If an employee works from home, he or she may be paid an expense allowance of up to £4 a week by the employer without having to produce evidence of expenses.

If travelling on work, personal incidental expenses may be paid tax-free up to £5 a day in the UK or £10 a day overseas. This is designed to cover such odd expenses as newspapers and laundry that may not otherwise be allowable.

UK Pensions

Employer contributions to your pension scheme or your own personal pension policies are not liable for tax or NICs. The employee's contribution attracts tax relief but not relief from national insurance.

You should be aware that while your employer can contribute to your personal pension scheme, these contributions are added to your own for the purpose of measuring your year's pension input against the annual allowance which is now £50,000. Extra relief may be available dependent on your level of contributions during the last three tax years. Please ask us or your normal pension adviser for advice.

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