As staff return to the office in increasing numbers, but with an element of home working remaining a permanent feature for many, now is time to review the package of benefits you offer to your employees. A well-considered benefits package should help staff to feel rewarded for their efforts and may give the firm an edge in the recruitment market.
Here we look at some topical benefits that you might wish to consider.
Salary sacrifice
This involves an employee contractually giving up part of their remuneration in exchange for something else, typically some form of benefit (which might be taxable or might not). The salary foregone is not subject to tax and national insurance, and there is a national insurance saving for the firm too.
Staff may welcome the opportunity to give up some of their salary to ‘buy’ extra holiday and you could set a maximum overall holiday entitlement to ensure it does
not affect client service.
The salary could be sacrificed in exchange for employer pension contributions. This is particularly tax efficient because tax and national insurance is saved on the salary foregone and there is no tax or national insurance payable on the pension contribution. With the increased rates of national insurance in the current tax year, and the health and social care levy being introduced from April 2023, swapping salary for pension contributions becomes more attractive. The firm may also wish to pass on some of its national insurance saving as an enhancement to the contribution.
Whilst the provision of a company car is a taxable benefit, the tax regime for fully electric cars is considerably more favourable at present, and the benefit in kind is current ly calculated at 2% of the list price. The provision of charging points at the workplace or the employee’s home and electricity to charge the car is not a taxable benefit.
Offering employees the option of a company car under a salary sacrifice arrangement could be an opportunity for the firm to improve its green credentials and save some tax along the way. Hybrid cars with low emissions and a reasonable electric range can also be relatively tax efficient.
As salary sacrifice is a contractual arrangement, it must be properly implemented to achieve the tax benefits, and consideration must also be given to national minimum wage requirements for lower paid employees.
Payments for home working
For the past couple of tax years, HMRC relaxed the conditions to be met for employees to claim tax relief on working from home costs.
Although this relaxation came to an end from April 2022, there are still opportunities for firms to make contributions towards employees’ home working costs, and the only requirement is that there is a formal arrangement with the employee that they will work from home on a regular basis. HMRC will allow a payment of up to £6 per week tax-free without the need for any record keeping.
Benefit in kind platforms
There are a number of providers in the market who offer ‘platforms’ through which employers can tailor their benefits package. Whilst the benefits offered will generally be taxable, these platforms streamline the administration and offer flexibility to employees over the benefits they wish to opt into.
Tax-free benefits
If the firm wishes to offer taxable benefits to their emplo yees on a tax-free basis, the firm needs to enter into an agreement with HMRC for the benefits to be grossed up. The tax and national insurance is then settled by the firm on behalf of the employees.
However, there are tax-free benefits which can be offered to employees, such as:
- Payment of professional fees and subscriptions that are on HMRC’s approved list
- Work-related training or exams that are relevant to the job role
- One mobile phone per employee with no restriction on private use
- Workplace parking at or near the office
- Cycle to work scheme, often provided through salary sacrifice
- One health check per tax year
- Trivial non-cash benefits costing up to £50 per person
As with any tax exemption, there are conditions to be satisfied in order for the benefits to qualify as tax-free, so if you would like to explore whether anything here could be right for your firm, or review the qualifying conditions in more detail, please get in touch.