Flexible benefits schemes also typically include tax-efficient benefits such as childcare vouchers, bike loans, mobile phones, which are offered through salary sacrifice arrangements.
A salary sacrifice occurs when an employee contracts to give up the right to receive a portion of their salary. This is used to provide a benefit, which is typically free of tax and National Insurance (NI) for employees. Employers can also save up to 12.8% on NI.
Childcare vouchers are a well-established perk which let employees fund registered childcare for their children, and have been in existence since the government introduced tax and National Insurance (NI) relief on vouchers up to £50 a week in 2004. This cap was raised to £55 in 2006.
Offering employees tax-efficient vouchers also help staff manage a return to work after the birth of a child, which could potentially be a difficult process.
Bike loans operated through salary sacrifice arrangements typically run for 12 months, and one requirement of the scheme is that the employee must use the bike to travel, for some part at least, between home and work.
As payments are made from employees’ gross salary, they are made free from income tax and national insurance (NI), while employers also save the NI contribution of 12.8% on the value of salary sacrificed. If employers purchase the bikes outright, they can also reclaim the VAT on them. Some may pass this saving onto staff.
Mobile phones can also be bought tax efficiently through a voluntary benefits scheme, after a tax break on the product was added by the government in 1999.
The employer can make NI savings of 12.8%, while employees also make savings on a combination of tax and NI contributions, typically of either 33% or 41% on their mobile phone.
Health screening, where made available through salary sacrifice also offers employees and employers NI†and tax savings.
The increase in awareness around the health and wellness of employees at work has led to a rise in demand for affordable healthcare products, and with the savings available, health screening fits the bill.
Work-related training is an emerging tax-efficient benefit that is creeping onto the voluntary benefits list. Where an employee agrees to lower his or her salary, and the employer in turn funds the training, both tax and NI†savings are available.
However the training must be linked to either a current role or one that the employee could potentially move into in the future.