Reward your employees – 5 tax efficient ways

1. Salary Sacrifice

If you choose to reward your employees with salary sacrifice schemes, employees give up pay and receive a benefit instead. Often these benefits have a more favourable tax treatment or are completely exempt from tax and National Insurance (NI) as long as certain criteria are met. Common schemes cover:

  • childcare vouchers
  • cycle to work scheme
  • pension payments
  • workplace parking
  • buying extra annual leave
  • technology (such as iPads)

As long as the arrangements are set up correctly, there is generally a saving to be made on the employer’s NI contributions due on the salary that is sacrificed, currently at a rate of 13.8 per cent.

Balmer Accounts Reward Your Employees2. Share plans

Employers can offer employees shares or share options in their company as part of a government approved share scheme. They can be used to recruit, retain and motivate employees as well as improve staff performance and morale.

There are a number of schemes that can allow anything from key individuals to the entire workforce to be offered shares or share options. Approved schemes are: Share Incentive Plans, Save As You Earn schemes, Company Share Option Plans and Enterprise Management Incentive schemes.

Specifically targeted at small trading companies, EMI options are discretionary so they do not have to be offered to all employees. There are specific statutory conditions that the EMI company and the employee must meet. If options qualify as EMIs throughout and options are granted with an exercise price equal to the unrestricted market value at grant, there is no income tax or NICs on the exercise of an EMI option. Note however, that capital gains tax may be payable on the sale of the option shares.

3. Work-related training

An employer may pay for the costs of, for example, an MBA course and this will not suffer a benefit-in-kind tax charge. This is because employer-provided work-related training is not liable to tax or NIC.

If the employer finances such work related training via savings achieved through a salary sacrifice scheme, then the employee will be far better off financially; also the employer would save NIC in addition to having an up-skilled employee.

4. Loans

From 6 April 2014, the interest-free beneficial loan limit went up to £10,000 with no tax implications; such loans are most frequently used for commuter season tickets.

Employers might want to reconsider any current policy or provide additional assistance, by using this limit where funds are used to help employees with raising a home deposit, getting a car or reducing their student loan.

5. Recreational benefits

There is an exemption for annual parties and functions whereby employers can provide functions without creating a tax liability up to a total cost of £150 per head (with certain criteria). If you use this exemption to hold an annual function it can create a lot of staff goodwill; it could also be used to purchase staff a gift to thank them for their work – although note that gifts must meet certain criteria or HMRC will declare them ‘non trivial’ and disallow the tax exemption.

This allowance could also be used to provide sporting or other recreation facilities tax-free provided that certain conditions are met. For example, a facility such as a workplace gym, provided that it is not made available to members of the public.

If you want to discuss any of these ideas further please drop Mike or Lynn an email at  or call on 01280 818776.



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