While taxation usually focuses on what you owe, there are also ways to take advantage of tax-free perks. The best tax-free benefit for company directors comes from utilizing exemptions that allow them to extract profits efficiently while reducing their tax liability. By making smart use of these opportunities, directors of personal and family companies can optimize their earnings in a tax-friendly manner.

Mobile Phone

Providing a director with a mobile phone can remain a tax-free benefit if specific conditions are met:

• Contractual Agreement: The mobile phone contract must be between the company and the service provider. If the company reimburses the director for a personal mobile phone contract, the exemption does not apply.
• Ownership: The phone should be provided for the director’s use without transferring ownership to them.
• Limit: The exemption applies to one mobile phone per director.

When these conditions are satisfied, the benefit is free from Income Tax and National Insurance Contributions (NICs), and the company can deduct the costs for corporation tax purposes.

Mileage Allowances

Directors using their personal vehicles for business journeys can receive mileage allowances at HMRC’s approved rates without incurring tax liabilities:

• Rates: 45p per mile for the first 10,000 business miles and 25p per mile thereafter.

These allowances are exempt from tax and NICs and do not need to be reported to HMRC, provided they do not exceed the approved amounts.

Childcare Support

Mileage Allowances

While employer-supported childcare schemes and childcare vouchers remain available for existing participants, the government has introduced the Tax-Free Childcare scheme:

• Tax-Free Childcare: Eligible working parents can receive a government top-up of £2 for every £8 paid into an online childcare account, up to £2,000 per child per year.

Directors should assess which scheme offers the most benefit based on their circumstances.

Parking

The company can cover the cost of parking at or near the workplace without creating a taxable benefit for the director.

Pensions

Pensions

Employer contributions to a registered pension scheme on behalf of a director are not considered a taxable benefit. However, changes effective from January 1, 2024, limit contributions to 100% of the director’s salary per year. Contributions exceeding this limit are taxed as a benefit in kind. Directors should also be mindful of their annual allowance to avoid potential tax charges.

Annual Functions

The exemption for annual parties, such as Christmas events, remains:

• Limit: Up to £150 per head, including guests.

If the cost exceeds £150 per head, the entire amount becomes taxable.

Medical Benefits

Certain medical benefits can be provided tax-free:

• Health Screenings: One annual health screening and medical check-up per year.
• Recommended Medical Treatment: Costs up to £500 per year for treatment aiding a return to work after injury or ill health.

Long Service Awards

Tax-free awards can be given for long service:

• Criteria: Minimum of 20 years’ service.
• Value: Up to £50 per year of service (e.g., £1,000 for 20 years).

The award must be tangible property, not cash or vouchers.

Trivial Benefits

The statutory exemption for trivial benefits allows the company to provide small benefits without tax implications:

• Limit: Individual benefits costing £50 or less.
• Annual Cap: For directors of close companies, the total tax-free trivial benefits are capped at £300 per year.

The benefit cannot be in cash or a cash voucher.

National Insurance Contributions (NICs) Changes

Effective from April 6, 2025, there are significant changes to NICs:

• Employer’s NIC Rate: Increases from 13.8% to 15%.
• Secondary Threshold: Reduced to £5,000 per year (from £9,100).
• Employment Allowance: Increased to £10,500, allowing eligible businesses to reduce their NICs liability. However, sole directors without other employees are not eligible for this allowance.

Directors should review their remuneration strategies to mitigate the impact of these changes, such as optimizing salary and dividend combinations and considering tax-efficient benefits.

Skyrock accountant can review your accounts and help you make great tax savings.