Many tax breaks are swiftly disappearing, as the Government’s reforms begin to take shape. But there are still some excellent opportunities to offer employees valuable perks and benefits, which, depending on the way they are taken, are also financially beneficial to your business. Many of these originate through salary sacrifice arrangements, which allow staff to swap a pre-agreed portion of gross earnings for benefits like childcare vouchers or pension contributions. They are financially beneficial because they effectively deliver a win-win for employer and employee through the opportunity to save on the national insurance contributions (NICs) that would otherwise be payable. With the rate of NICs due to increase for employees from next April, salary sacrifice will inevitably become more wide spread.
For some companies, the savings to be made simply mean the potential to make more money – and there’s nothing wrong with that! For others, it’s an opportunity to improve the range of benefits available, because money that would otherwise go to the taxman is re-invested in providing better perks. For situations where salaries have been frozen or bonuses stopped as a result of the economic climate, salary sacrifice schemes are an obvious motivational benefit.
There are a wide range of possibilities available to consider, as the following list illustrates. Note, childcare vouchers are not included in our review because although still applicable, they are due to be phased out to new applications.
Pension contributions
These are very tax efficient, even in the wake of changes to reliefs for higher rate tax payers. Staff are able to cut the cost of pensions because contributions can be made NI free. Both workers and the employer can save on income tax because contributions are tax deductible from accounting profits.
Bicycle loans
The cycle-to-work scheme has been extremely popular and it typically means an employee can get up to 50% off the overall cost of a new bike.
Mobile phones
This is considered to be a very useful perk by employees. There is no charge to tax on one mobile phone provided to an employee regardless of the volume of private calls made (and there is no need to reimburse those private calls to avoid a tax charge.
Bus travel
In certain circumstances employees can save up to 41% on the cost of bus passes
Canteen food
Another salary sacrifice scheme, it typically offers staff the chance to exchange part of their gross salary for credits loaded onto a plastic card, which can be spent in the work canteen. There is also a tax exemption for an employee whose employer provides free or subsidised meals – as long as they are made available to all employees.
Health screening and check ups
Any health screening or medical check-ups provided by an employer can be exempt from tax and NI providing certain conditions are met.
Car parking
Spaces at or near an employee’s place of work are not a taxable benefit.
Charitable donations
Payroll giving schemes are becoming increasingly popular because where donations are made via salary sacrifice, neither tax nor NI is payable
Long-service awards
If you have long standing members of staff, they are eligible to receive a tax-free lump sum of up to the value of £50 for each year of service.
Paul Webb is a tax expert specialising in small businesses and partner at Robert James Partnership.
For advice on tax efficient benefits, please contact Paul on pw@rjp.co.uk.