Had I accidentally lifted a more expensive brand? I was so shocked that, against my usual nature, I even queried it with the shop assistant. To my slight embarrassment, the explanation was simple: that’s the price of milk now.
Clearly, our net pay is not stretching as far as it once did. Is there anything employers can do to help? The average employee would simply answer, “yes, pay us more”! But it’s not necessarily as simple as that for most employers, and in real terms, unyielding tax rates erode the value of more pay. Whilst there is no ‘silver bullet’ in addressing the cost-of-living crisis, there are still some tax efficient benefits.
I have been working in tax for over 16-years, and it still surprises me to learn that many employers do not operate (and may not even be aware of the benefits of) salary sacrifice for pensions. This arrangement results in employees receiving more cash-in-hand whilst also saving the company money.
How does it work? An employee who contributes to a workplace pension scheme out of net pay agrees instead to sacrifice that part of their salary. Their employer then pays it directly into the pension scheme as an employer pension contribution. How does this save the employee (and employer) money? Well, exactly the same amount goes into the pension scheme, but because the employee sacrificed some salary, they pay less national insurance contributions. The employee’s net pay each month therefore increases. The company also saves employer NIC, and can pass those savings to the employees if it so chooses.
An employee earning £30k, contributing 5% (£1.5k) to the pension, would save £180 NIC pa (i.e. £15 better off each month). The employer would save £207 every year for every such employee.
The arrangement does constitute a change to an employee’s terms and conditions, so care needs to be taken in implementation.
Companies can also operate tax-efficient salary sacrifice schemes such as bike to work and electric cars.
What other tax-efficient benefits are we seeing?
- “Trivial benefits” which allows companies to provide staff a non-cash gift worth up to £50 as long as it is not reward for their work;
- Daily fruit deliveries to the office;
- The provision of a car-parking space at or near the workplace;
- Interest-free loans (tax free as long as less than £10k);
- The provision of a mobile phone;
- Free or subsidised meals at the workplace canteen.
Many employers are opting to provide one-off cost-of-living “bonuses” or vouchers, with the employer agreeing to settle any income tax and NIC on the employees behalf.
Combined, these can amount to tax-free benefits of thousand pounds a year in monetary terms, but the longer term benefits of a workforce that feels more valued is priceless.
For those at a more senior level, where companies may struggle to give meaningful pay rises, we are seeing an increased use of incentive arrangements involving shares, and there are tax-efficient options available for certain types of share plans.
There is certainly scope for employers to take this opportunity to think outside the box and remember that every little helps.
