In the previous edition of Connection, we introduced the topic of Salary Sacrifice, and how your company could benefit from the right arrangements. You've discovered that Child Care Vouchers, Home Computer Initiative (pre-April 2006), Bikes For Work and insurance-type arrangements negotiated by employers, are now being accompanied by newer tax and NICs-efficient benefits being explored at the extremes of employee benefit provision... Which leaves the ball firmly in your court.
It remains up to you, the employer, to make effective use of the schemes available.
Did you know?
The employee can potentially save 22% tax and 11% in NICs on the costs of some of these benefits, and increasingly more important, the employer can save 12.8% of the costs of such benefits from their employer NICs contributions. These amounts can potentially be substantial. And higher-rate tax payers can achieve savings of 40% (although the NICs savings is potentially limited to 1%). This, of course, all changes from April 2008 when the basic rate reduces to 20% and NIC upper earnings limit is aligned with the higher tax rate band.
So where is flex expanding into?
Most benefits being offered attract commission payments as an income to the provider, but employers may consider taking advantage of other elements.
Save with reduced NICs
The following flexible benefits attract no tax or NICs liabilities and potentially offer great savings to the employee over the costs they would bear if paid direct out of their net pay:
- Employee medical screening
- Provision of a single mobile phone (limitations were placed on the provision of multiple phones in April 2006).
- Share incentive plans held in trust for a period of years.
- Through the provision of salary sacrifice, the arrangement can be engineered to take advantage of the employer-provided free shares at no cost to the employer. In effect the employee sacrifices pay to receive free matching and free employer given shares.
- Employees who occasionally work from home may agree to offset some of their pay to receive as an alternate the £2 per week tax- and NICs free. Although the advantage is limited, it does boost the net pay of the employee potentially by between £34.32 and £42.64 per annum and saves the employer £13.31 per year for every employee in the scheme – it all potentially adds up.
So the scope for the expansion of Salary Sacrifice arrangements is wide and varied, thereby paving the way for a number of specialist flexible benefits providers, like Ceridian.
Found these tips handy? Why not use our expertise to take full advantage of the legal loopholes that apply to benefit provision?
Contact us for more information on flexible benefits.
In the next issue: The final of our three-part series of flex bens hints and tips!