Expenses vs. Benefits: Let’s Start with the Difference
A business expense is something your company pays for that’s wholly and exclusively for business purposes - travel to a pitch meeting, conference tickets, or software for your team. These are normally tax-free when paid by the company or reimbursed.
When reimbursing an employee personally, the rules get tighter. The expense must also be necessarily incurred in the performance of their duties - which can rule out more general costs like training for future roles or non-essential tools.
Mileage rates have changed
Mileage is a good example of where the expense rules matter in practice. For 2026/27, the approved mileage rate for employees using their own car or van for qualifying business journeys has increased from 45p to 55p per mile for the first 10,000 business miles in the tax year. The rate remains 25p per mile for business miles above 10,000.
This only applies to genuine business travel, not ordinary commuting. Employers should also make sure mileage claims are supported by clear records, including the date, destination, business purpose and number of miles travelled.
By contrast, a benefit in kind (BIK) is something extra you give an employee that has a personal benefit rather than exclusive business use - like a gym membership, health insurance, or use of a company car. Unless exempt, these perks are usually taxable.
The Good News: There are Tax-Free Perks
There are some valuable benefits you can offer your team without triggering extra tax.
These include:
- A mobile phone provided for work
- Employer pension contributions
- Qualifying work-related training
- One health screening assessment and one medical check-up per year
- Meals or refreshments provided in the office
- Annual team events that are open to employees and cost no more than £150 per head
- Home-working payments (up to £26 per month), where the qualifying conditions are met
These can be especially helpful for startups trying to compete with bigger company packages - without adding admin or tax complications.
What About Small Gifts?
You can also offer low-value, non-cash gifts under the trivial benefits exemption, as long as:
- The gift is £50 or less
- It isn’t cash or a cash voucher
- It’s not performance-related or contractual
Used well, this allows you to build culture and goodwill, through small birthday gifts, one-off treats or seasonal gestures without triggering tax. Just note that for directors of close companies, there’s a £300 annual limit.
Keeping Records
As with most tax areas, good records make life much easier. Keep a note of what has been provided, who received it, the cost per employee, and why it was business-related or exempt. This is especially important as your team grows and perks start being introduced more informally. A simple approval process, supported by receipts and notes on the business purpose, can save a lot of time when it comes to payroll, P11Ds or PAYE Settlement Agreements.
What’s the Cost of Getting it Wrong?
If a benefit is taxable, your employee pays income tax on it at their marginal rate. This can be collected through their tax code, via payroll where the benefit is payrolled, or through Self Assessment depending on the reporting route.
For your company, most taxable benefits will also trigger Class 1A National Insurance at 15% of the taxable value, plus the admin involved in reporting the benefit or dealing with it through payroll or a PAYE Settlement Agreement. That adds up quickly if you’re not keeping track.
A Scaleup-Friendly Approach to Benefits
As a scaling business, flexibility matters. You may want to offer things like gym access, but managing contracts with different providers in multiple locations just isn’t realistic, especially for remote or hybrid teams.
What we often see work well is a simple taxable allowance paid via payroll. For example, £80/month toward wellbeing or health costs. If structured simply as a taxable cash allowance and processed through payroll, this avoids the need to assess lots of individual benefits or report them on P11Ds, while keeping things lean and compliant.
In Summary
Smaller businesses don’t always need complex benefit schemes. However, knowing what’s taxable, what’s not, and how to structure things cleanly can make a big difference to your admin load and your team’s take-home pay. Offer value where it makes sense - and don’t be afraid to keep things simple, just make sure you understand the rules.
