Do your staff ever complain about how much tax and NIC they pay?
October 16, 2013
You can help reduce your employees’ tax bills by introducing a Flexible Benefits scheme. Also known as sacrifice schemes, these arrangements are completely legal and are endorsed by HMRC. With new rules on the way for pensions and child care, it is a good time to consider how Flexible Benefits could benefit you.
What is a Flexible Benefits Scheme?
Flexible Benefits schemes give employees the freedom to structure their pay package in the way that suits them, choosing from a range of benefits. This can result in a tax and/or NIC saving, where the benefit is non taxable. The classic example is pensions, but they can also be used for child care vouchers, cycle to work schemes and other benefits.
Pensions and Auto Enrolment
Under the auto enrolment rules, employers and employees will be required to make minimum contributions to employee pension plans, unless the employee opts out. These will start at a 2% total contribution, increasing over time to 8%, including a 5% employee contribution.
A flexible benefits scheme will give NIC savings to the employee and the employer. This works by the employee giving up some of their taxable salary in exchange for the employer paying an enhanced contribution. Both employer’s and employee’s NIC contributions are saved on the salary sacrifice. Further savings can be made if the employee chooses to make pension contributions above the auto enrolment limits.
Employers can currently provide tax free child care vouchers to basic rate tax payers at up to £55 per week. Higher rate tax payers also benefit from tax savings, and child care vouchers can be provided through a salary sacrifice system.
Relatively few employers provide this benefit, which is why the government is seeking to replace it with a new scheme called Tax Free Child Care, from 2015. The details of this are still being worked out, but the idea is that parents will be given the option to buy subsidised child care vouchers worth up to £6,000 a year per child, with a discount of 20% of their face value. This will initially be available for children under five, and will later be extended to under 12s. The current child care voucher system is open to children under 16.
There will be winners and losers under the new scheme. The old scheme will be continue to be available to employees who are already in it, but will be closed to new entrants once the new voucher scheme is launched. You can therefore give your staff the best of both worlds by including child care vouchers in your Flexible Benefits scheme, provided they are receiving child care vouchers in August 2015, when the new scheme commences.