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Exchange salary for tax free benefits to save employers NIC

Exchange salary for tax free benefits to save employers NIC

What is it?

The idea behind this is quite simple. Your employee gives up part of his salary and, in return, you give them a non-cash benefit that is ideally exempt from tax and NI.

Your employees pay in cash is lower, so they pay less tax and NI. In addition, you will not have to pay their Employers’ National Insurance contributions on the salary that is sacrificed.  Some employers pass on some or all of these savings onto their employees.

Typically this is used for tax free benefits such as pension contributions and child care vouchers.

However it is not limited to tax exempt benefits.  The same scheme can be applied to taxable benefits if an employee is willing to sacrifice salary in exchange for say a company car, insurance cover or gym memberships.  Whilst the tax savings achieved are not as high as with exempt benefits this still allows for a more flexible benefits package to be awarded.

Some rules …

Of course, as with most measures that result in a tax savings there are some rules that need to be observed to ensure the scheme is not abused.

These are relatively straightforward and with some planning can usually be easily managed to ensure a smooth implementation.

For example, the salary sacrifice should be a true sacrifice reflected as such in employment contracts and many benefits are required to be offered to all employees (although there is no obligation on them to all take it up).

This really is a great way of making salary more tax efficient and providing more flexible remuneration options to your employees.  There are many different options, so get in touch if this is something you would like to discuss further.

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