Navigating payroll compliance and applying tax exemptions correctly can be complicated for businesses of all sizes. Payroll exemptions allow businesses to reduce taxable income through specific benefits and allowances, but it's easy to make mistakes without the proper expertise.
At Borderless Payroll, we handle all your payroll needs, ensuring full compliance and allowing you to take advantage of every available exemption. Here’s everything you need to know about payroll exemptions in the UK and why outsourcing your payroll to us can save you time, money, and stress.
What Are Payroll Exemptions?
Payroll exemptions are certain expenses and benefits provided by employers that are not subject to tax or National Insurance Contributions (NICs). Employers need to report these accurately to HMRC, and incorrect reporting can lead to fines or investigations.
By understanding the most common exemptions, businesses can reduce their tax burden while staying compliant. Let’s break down the most significant exemptions available to businesses operating in the UK:
Key Payroll Exemptions
Trivial Benefits
Small gifts or benefits under £50, such as staff gifts or meals, are exempt from tax and NICs if they are not tied to performance or contractual bonuses. Employers can provide multiple trivial benefits throughout the year, provided each stays under the threshold.
Read more about Trivial Benefits.
Pension Contributions
Employer contributions to workplace pensions are exempt from NICs and income tax if paid into a registered pension scheme. Salary sacrifice arrangements also allow employees to swap part of their salary for pension contributions, reducing both their taxable income and NICs.
More on Pension Contributions.
Business Expenses
Reimbursement for business-related expenses, such as travel, meals, and accommodation, is typically tax-exempt. However, employers must ensure they properly record these expenses and apply the right rules.
HMRC Business Expenses Guide.
Salary Sacrifice Schemes
Salary sacrifice allows employees to exchange part of their salary for non-cash benefits, such as pension contributions, childcare vouchers, or company cars. This reduces both tax and NICs for employees and employers.
Read more about Salary Sacrifice.
Employer-Supported Childcare
Employers can offer tax-free childcare vouchers or direct childcare arrangements, helping employees save on childcare costs. To qualify, contributions must be within HMRC's defined limits.
Tax-Free Childcare Information.
Living Accommodations
Employers providing living accommodations may qualify for tax exemptions if the accommodation is essential for the employee’s role, such as for security personnel or caretakers.
Remote Working Allowances
Employers can pay employees up to £6 per week tax-free to cover the additional costs of working from home. Higher amounts can be reimbursed if evidenced by actual costs.
More on Homeworking Expenses.
Incidental Overnight Expenses
Employees on business trips can receive tax-free allowances for incidental expenses, such as laundry or personal phone calls, up to £5 per night in the UK and £10 per night abroad.
More on Overnight Expenses.
Disabled Employee Travel
Employers can pay for or reimburse home-to-work travel for disabled employees, including vehicle adaptations and special travel allowances, without the payments being subject to tax or NICs.
More on Disabled Employee Expenses.
HMRC Exemptions and Dispensations: Simplifying the Process
In 2016, HMRC introduced a simpler way to manage business expenses by replacing dispensations with exemptions. These exemptions mean that employers no longer need to report routine expenses and benefits, such as travel or phone bills, provided they pay the approved benchmark rates. However, businesses must keep records and evidence of these expenses to ensure compliance.
To further ease the burden, Borderless Payroll stays up-to-date with these rules, ensuring accurate record-keeping, reporting, and compliance with all HMRC guidelines.
Learn more about HMRC Exemptions and Benefits for Employers.
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How Borderless Payroll Simplifies Your Payroll Process
We know that managing payroll isn’t just about calculating salaries—it’s about staying compliant with the many regulations, taxes, and exemptions that apply. Borderless Payroll takes all the headaches away by providing a seamless payroll outsourcing experience.
Here’s how our process works:
Initial Consultation: We evaluate your payroll needs and along with your accountants ensure your business is structured to take full advantage of the available exemptions.
Custom Payroll Solution: We develop a tailored payroll system that integrates with your business, no matter the size.
Accurate Onboarding: We ensure all employee data is set up correctly, and all payroll calculations and exemptions are properly applied from day one.
Ongoing Compliance: We manage all HMRC filings, handle any changes to payroll legislation, and ensure your business stays compliant.
Employee Support: Our payroll experts are available to support your employees and answer their payroll-related queries, ensuring transparency and satisfaction.
Common Payroll Mistakes and How We Prevent Them
Managing payroll in-house can be expensive as well as risky, and errors can result in costly penalties. Here are some common mistakes companies make and how Borderless Payroll helps prevent them:
Missing Filing Deadlines: Late submissions can result in fines. We ensure timely reporting and filing with HMRC.
Misapplying Exemptions: Many businesses fail to correctly apply payroll exemptions, risking non-compliance. Our team ensures every exemption is applied correctly.
Non-Compliance: Changing legislation can be hard to track. We stay on top of changes to keep your payroll compliant.
Inaccurate Records: Incorrect data entry or documentation can lead to under- or overpayment. We ensure your payroll records are accurate and up-to-date and we audit our processes internally to give you extra peace of mind.
Why Outsource Payroll?
Outsourcing payroll offers significant benefits:
Time Savings: Free up your internal resources to focus on business growth.
Cost-Effectiveness: Save money compared to maintaining an in-house payroll team.
Compliance: Ensure your payroll is fully compliant with all UK tax regulations and exemptions.
Employee Satisfaction: Accurate, timely payroll enhances employee trust.
Conclusion
Payroll exemptions are an excellent way for businesses to save money, but managing them requires expertise and attention to detail. Borderless Payroll takes all the hassle out of payroll management, offering expert solutions to ensure you stay compliant while maximizing your benefits. Speak with your finance director or accountant to make sure you are taking full advantage of everything you are entitled to, or speak with us directly to take over your payroll. We are here to help you!
This article is a basic guide, and we always advise speaking with professionals, as information and rules change often. For up-to-date information relevant to your business, contact us.
About the author
Jackie is a payroll specialist, having worked in this sector for many years. Her knowledge is excellent and the service she offers clients is above and beyond normal standards.