Tax Savings

Employee Benefits Tips and Reminders Plus Tax Reliefs for Investments in Unquoted Companies

May 30, 2024

This month, the TAG Accountants team has put together some useful reminders about employee benefits and some thoughts around tax reliefs for those who invest in unquoted companies.

Changes to Taxable Employment Benefits from April 2026

From April 2026, it will become mandatory to report and pay Income Tax and Class 1A National Insurance Contributions on benefits in kind via your payroll software. This is a significant change to the current system which involves the annual submission of P11Ds but is expected to simplify and reduce the burden of the tax system for both employers and employees.

Real-Time Collection of Taxes on Employment Benefits

This means that the 2025/26 tax year will be the last year that employers will be able to file P11Ds with HMRC in most cases. From then, tax on employment benefits will be collected in real-time and not through tax codes in arrears. Instead of being collected at the end of the tax year, Class 1A National Insurance contributions will also be collected in real-time for each pay period.

Engagement with Stakeholders and Upcoming Legislation

HMRC has stated that they will engage with stakeholders to discuss their proposals to inform design and delivery decisions. Draft legislation will be published later in the year as part of the usual tax legislation process, followed by guidance on the new system.

Updated Guidance on Work Travel and Working from Home

It has been long established that travelling from home to an employee’s normal workplace (known as “ordinary commuting”) does not qualify for tax relief and if the costs of these journeys are reimbursed by the employer, those costs are taxable.

There are exceptions to this rule, particularly when the employer pays for the employee to travel home safely in a taxi late at night.

Tax-Free Benefits for Travel to Temporary Workplaces

Travelling to a “temporary workplace” is a qualifying business journey and, where the employer reimburses the costs, there is no taxable benefit. Note also that any associated subsistence costs, such as overnight hotel accommodation costs, are also a tax-free benefit. HMRC Booklet 490 provides detailed guidance on employee travel, along with comprehensive examples (this is now an online document).

Tax Relief for Travel Expenses

As more employees work from home these days for at least one day a week, attention should also be paid to the latest HMRC guidance on such arrangements.

Home as a Workplace and Tax Relief Eligibility

Whether or not an employee’s home is a workplace does not affect the availability of tax relief for travel expenses. Travel expenses from home to a permanent workplace will only qualify for tax relief if the journey qualifies as travel in the performance of the duties of the employment. Even though it may have been accepted that the employee’s home is a workplace, it does not necessarily follow that they will be entitled to tax relief for the cost of travel between their home and a permanent workplace, as the place where an employee lives will ordinarily be down to their personal choice. The expense of travelling from their home to any other location is a consequence of their personal choice, not an objective requirement of the job.

Conditions for Tax Relief on Home-to-Work Travel

HMRC guidance states that where an employee performs substantive duties of their employment at home as an objective requirement of the job, they may recognise their home as a workplace for the purposes of the ‘travelling in the performance of the duties’ rule. Where this is the case, the employee will be entitled to tax relief for the expenses of travelling from home to other workplaces, as their travel is in the performance of their duties.

HMRC will usually only accept that working at home is an objective requirement of the job if the employee needs certain facilities to perform their duties, and those facilities are only practically available at their home. This will exclude most people who work from home.

The guidance indicates that HMRC will not accept that working at home is an objective requirement of the job if the employer provides suitable facilities in another location that could be practically used by the employee, or if the employee chooses to work from home.

Even when the employee works at home as an objective part of the employment, tax relief for the cost of travel between their home and their permanent workplace will only be applicable for travel undertaken on days when the employee’s home is considered a workplace.

On other days, the employee is travelling between their home and a permanent workplace, which is ordinary commuting and not available for tax relief.

Tax Exemptions for Late-Night Taxi Journeys

Payments by the employer for taxis to take employees home late or at night are exempt from tax if: the failure of car sharing arrangements conditions are satisfied (see below), or all four of the late-night working conditions are satisfied, and the number of such journeys for which a taxi has been provided for that employee in the tax year is no more than sixty.

The four late working conditions, all of which must be satisfied are:

  • The employee is required to work later than usual and until at least 9 pm.
  • This occurs irregularly.
  • By the time the employee ceases work, either public transport has ceased, or it would not be reasonable to expect the employee to use public transport.
  • The transport is by taxi or similar road transport – this condition is not contentious and is not referred to again in this guidance.

The sixty journeys limit applies to late-night journeys and failure of car-sharing arrangements together. This means that journeys under both headings must be added together to determine whether the sixty journeys limit has been reached.

Tax Reliefs When Investing in Unquoted Trading Companies

If you are thinking about lending money to, or subscribing for shares in, an unquoted trading company, like many investments, there is always a risk that you may lose your money.

However, there is potential tax relief for the lender if the loan meets certain conditions, in particular, the borrower uses the money lent wholly for the purposes of its trade, and that trade does not consist of or include the lending of money.

Capital Loss Relief for Loans to Trading Companies

The tax relief comes in the form of a capital loss that can be offset against gains in the same or future tax years. To make a claim for capital loss relief, any outstanding amount of the principal of the loan must have become irrecoverable, the claimant must not have assigned their right to recover that amount, and the claimant and the borrower cannot be each other’s spouses or civil partners, or companies in the same group when the loan was made or at any subsequent time.

Loss Relief for Shares in Unquoted Trading Companies

When an individual subscribes for a new issue of shares in an unquoted trading company, there is an even more generous form of loss relief if those shares are disposed of at a loss, including when the shares become worthless. In that scenario, it is possible to make a negligible value claim, which results in a deemed disposal and reacquisition of the shares at that low value, thus generating a capital loss. Subsequently, a further claim can be made to offset that capital loss against the subscriber’s income in the year of the loss and/or the previous year.

This relief is attractive as the income tax relief could save tax at 40% for higher rate taxpayers and 45% for additional rate taxpayers, as opposed to a capital gains tax saving at a maximum of 24% (on residential property gains).

Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

Where the company qualifies under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), the subscribers potentially qualify for even more generous tax reliefs. Where the investor is not connected with the company, they are entitled to tax relief based on 30% of the amount invested (EIS) or 50% in the case of SEIS. This relief is deducted from the investor’s income tax liability for the year or the previous year in the case of EIS investment. The shares need to be held for at least 3 years to retain the income tax relief and the shares would also be exempt from CGT when disposed of.

If the EIS or SEIS shares are disposed of at a loss, then the resulting capital loss (net of income tax relief provided) can be offset against the investor’s income as outlined earlier.

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