Debi O’Donovan, editor of Employee Benefits: All systems go – but be careful on tax-efficiency

We are now just two months away from the VAT increase to 20%, and five months away from the 1% rise in national insurance.

This, coupled with other incoming tax changes on benefits such as high earners’ pensions and childcare vouchers, means that any benefits manager who is on the ball is taking a close look at their reward offering.

Until last month’s spending review and announcement of the £50,000 cap on tax-free annual pension contributions, there was a bit of a hiatus in the market as people waited to see just how much the coalition government was going to change.

We now know the 2012 pension reforms will go ahead as planned under the previous government and the national employment savings trust (Nest) will be launched as designed, while fears and rumours about the removal of tax breaks on some smaller benefits have come to nothing – at least for the time being.

So now it is all systems go for reward managers – in many cases, simply by tweaking existing strategies to ensure they maximise reward for employees under the new tax regimes.

Our special supplement this month on voluntary and tax-efficient benefits examines the topic of tax and NI breaks on benefits, and it is clear many people are still wary about which benefits might, in the future, lose their tax-efficient status.

This flags up two issues.

Firstly, it would be extremely helpful if the government could affirm the current tax and NI status of the likes of childcare vouchers and bikes for work, so employers know where they stand – even if such an affirmation is only for a certain number of years. These are primarily benefits the government wants people to take up, so unless there are secret plans afoot, why allow suspicion and wariness to fester?

Secondly, any employer building a reward strategy solely around tax-free benefits is treading on dangerous ground. Maximise savings by all means, but be aware of the impact on costs and staff engagement if such savings suddenly disappear. The experts always warn: start with a strategy, then build tax efficiencies around that.

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