Over the past year, reward consultants have been talking about the potential consequences for benefits of the tax changes announced in last April’s Budget.
Many hours of advice have been devoted to the new world order of executive reward as, firstly, the personal allowance is removed for those earning over £100,000 a year from this April, and, secondly, the new taxes related to pensions come into play in 2011. At a flexible benefits talk run by Towers Watson last month, it was clear that most of the audience of benefits managers were well up to speed with ideas to deal with the sudden tax hike that staff earning six figures might face.
But that audience would have been very engaged employers. Many others in the UK will not have taken on board the fact that their high earners are going to get a nasty shock in their pay packets this month. But the consensus is that it is not up to employers to get involved in employees’ tax affairs. Although this is the sensible view, the reality is that high earners are not known to take things lying down and their first instinct when their take-home pay appears to have taken a sudden drop will be to call the payroll team.
Given that there are so many ways staff can use salary sacrifice to reduce their taxable pay, it might be wise for employers to, at the very least, flag up any tax-efficient benefits on offer to affected staff. Whether employees choose to take up these options is up to them.
The tricky part for these staff is to find accountants and tax advisers who have a full understanding of corporate benefits, such as share plans, salary sacrifice benefits, benefits trusts and pensions, and how to get these to interact to ensure maximum tax breaks are exploited. Riding to the rescue, if you believe the marketing blurbs, are corporate wraps – online portals popular in the personal finance market that enable investors to view all their investments in one place while also being able to see the exact tax charges and breaks on each financial product.
While I am cautious about how popular these wrap platforms will be for most employees, they may capture the imagination of wealthier staff who have more complex investment and tax affairs to deal with.