A business is much more than strategic goals and profits; it is often a collection of individuals, all with their own lives and families, working together towards a strategic goal.
Employers often reward their staff for good results and provide them with benefits to make their working lives better. This is known as benefits in kind (BiKs).
Most benefits are liable for tax and national insurance contributions (NICs) but there are a number of exemptions.
Here are some of the main tax-efficient strategies that can be used to reward your employees.
Employers can make contributions to occupational or personal pension plans without triggering a tax charge, provided their employees are within the annual or lifetime limit.
The lifetime allowance for 2016/17 is £1 million (previously £1.25 million) while the annual allowance limit on tax-relieved pension savings is capped at £40,000.
Employers can help their workers with childcare costs using childcare vouchers. These vouchers are exempt from paying tax and NICs.
Employees can receive up to £55 a week from childcare vouchers depending on their earnings and when they joined the scheme.
A new system of tax-free childcare is set to be introduced in 2017.
Employers lending or hiring bikes to employees doesn’t count as an expense or benefit, as long as they’re made available to all staff and used only for getting to work.
Cycle to work scheme runs through salary sacrifice in that employees offer a part of their salary in return of a bike to cycle into work. Employers don’t deduct or pay tax and NICs on them.
Business can also provide cars under the salary sacrifice scheme as well as others such as contract hire, purchase, ownership and finance lease.
When an employee receives a car they will need to pay tax on the benefit and the fuel used for travel. The rate of tax is determined by the amount of co2 emitted by the vehicle.
Advisory fuel rates for company cars have changed as of 1 September 2016 and apply for the following:
- when a company reimburses employees for travel in their car
- when employees are required to repay the cost of fuel used for private travel.
Many employers will opt to reward benefits through salary sacrifice schemes to save paying their employee’s NICs on the earnings sacrificed.
However, HMRC has announced plans to reduce tax and NICs savings from salary sacrifice schemes, making BiKs through the scheme chargeable to income tax and Class IA employers NICs.
Talk to a member of our team today to find out how these changes may affect your business.