Page 24 - PWM2025_APRIL EBOOK

BETTER BUSINESS

For the

benefit of all

While individuals clearly work to earn a living, it’s
the small things in life that an employer offers that
can make all the difference as to whether employ-
ees feel cared for, go the extra mile, or simply seek a
move on to more ‘prosperous’ pastures, by Adam
Bernstein e recognise that “Getting an employee to buy an item
W and then reimbursing them will not

civil society
needs to be paid
give the same favourable tax out-
come. When it comes to paying for a
for through taxa-
‘tax-free’ benefit, it will be necessary
tion. But that
doesn’t mean
that anyone need pay more than they to get the company credit card out.”
Next, she says that in all but a few
have to. Because income tax thresh- specific cases, it is important that the
olds have been frozen for a while – employee is not asked to choose
and will continue to be so until 2028 between salary and the benefit.
– more are finding themselves paying Thornley explains that “when an
tax, and at higher rates, than ever employer offers an employee a
before. choice between either receiving a
The result of this is that giving staff benefit or extra salary – or asks the
more through their pay packets can employee to give up salary in
end up being self-defeating as they exchange for a benefit – then special
pay more in income tax, national ‘optional remuneration arrange-
insurance, student loans or may lose ments’ rules mean the employee will
state benefits. be taxed on whichever gives the high-
As a result, whatever an employer est tax bill, the salary given up or the worry about exceeding the annual allowance for pension contributions of
can give that is a tax-efficient benefit benefit received. She warns that this £60,000 a year.
will be greatly appreciated. can cancel out any of the hoped-for “For all but the lowest-paid workers,” says Thornley, “the value of any

Taxing benefits tax savings. Only certain benefits, pension payments made by the employee can be enhanced if the pension
including pensions, can be provided contributions are made via salary sacrifice. This means the employee
We are familiar with taxation of agrees to accept a lower salary in exchange for higher pension contribu-
wages and salaries, but employees in exchange for salary without losing tions from their employer.” This approach creates NI savings for both the
aren’t just taxed on the cash they the tax benefits. employee and employer.
receive. Most things that an Pensions
employer provides that has a value – Given the recent hike in NI contributions paid by employers, Thornley
including benefits such as health Employers have been required to reckons that this route will be particularly attractive for businesses from 6
insurance or company cars – need to enrol staff into a workplace pension April 2025. Indeed, she notes that the higher 15% rate and lower threshold
be assessed for tax. The benefit-in- scheme automatically since 2012. will particularly hit larger businesses and those with many part time staff.
kind rules which determine how However, by changing how the con-
these non-cash benefits are taxed can tributions are made, Thornley says Trivial benefits
be complex, but fortunately, as Helen that employers and their employees Another area for employers to consider are tax-free gifts to employees on
Thornley, ATT technical officer occasions such as birthdays, weddings or Christmas through the trivial
points out, there are a few benefits can make National Insurance (NI) benefits rule. Introduced in 2016, this rule provides a statutory exemption
which can be provided tax-free, pro- savings. from income tax and NI for employees and employers, but only where the
vided that employers stick carefully
to the rules. She details that in general, cost of the gift, including VAT, does not exceed £50 per employee; the gift
Thornley begins by noting that employer payments into a pension is not cash, or a voucher which can be exchanged for cash; the gift is not
with many tax-free benefits it is are tax-free and help employees to provided under a salary sacrifice or other contractual arrangement; and the
important that the employer pur- provide for their retirement; only gift is not provided in recognition of past or future services.
chases the benefit. As she says: very highly paid employees need to Thornley cautions employers that “they need to be aware this is an all or

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