Setting up a range of employee benefits don’t just make you an attractive employer; they could also save you money by reducing the amount of tax that you have to pay. In the latest part of our “52 Ways to Save Tax” guide, we look at the tax savings you can make through introducing employee benefits.
52 Ways to Save Tax – Part 26: Set up a ‘salary sacrifice’ scheme
Under a ‘salary sacrifice’ scheme, an employee chooses to receive a form of non-cash benefit in return for giving up some of their pay. They essentially reduce their salary by taking some of their remuneration in the form of another designated benefit.
Here’s an example. If you have an employee who earns £25,000 a year, they could agree to change their contract to receive a salary of £23,800 and 12 Childcare Vouchers a year, each worth £100.
The benefit of this to an employer is that you can save up to 13.8 per cent in National Insurance contributions on any such deductions made from employee’s salaries.
Bear in mind that an employee can only take advantage of a ‘salary sacrifice’ scheme if their pay does not fall below the Minimum Wage once the deductions have been made.
There are a number of benefits that can be used in a ‘salary sacrifice’ scheme. Keep reading to find out more.
Childcare Vouchers have been around since 1997 and help over half a million working parents every year. The vouchers can be used to pay for all registered childcare for children up to the September following their 15th birthday.
One of the huge advantages of the scheme is that they benefit both employees and the employer:
- Employees – childcare vouchers are non-taxable and exempt from National Insurance. The employee saves money as they only pay tax and NI on the remainder of their salary after the value of the vouchers have been deducted. Employees can sacrifice up to £55 per week from their salary
- Employers – save money as they don’t pay up to 13.8 per cent National Insurance
If you choose to pay for a mobile phone for your employee’s personal use, there are tax savings to be made. Under the scheme, you can provide a handset and you can save up to 13.8 per cent National Contributions on the employee’s monthly deduction.
The employee also saves as they make tax and NI savings on their bill.
“Cycle to Work”
The ‘cycle to work’ scheme saves employees hundreds of pounds on retail prices for bicycles and tax savings for the employer.
Under the scheme, a bicycle is paid for under a hire agreement paid for by a ‘salary sacrifice’ arrangement (usually over 12/18 months). After the agreed period, the ownership of the bike is transferred to the employee.
Employers save up to 13.8 per cent on National Insurance contributions for every employee on the scheme.
The scheme also sends a great message to your employees that you’re a forward-thinking company concerned about the environment and the health of your workers. Cycling to work has also been shown to reduce sickness absence.