There are several benefits that can save costs both for the employer and employee and a summary follows:
Employer pension contributions to an approved scheme (whether this is a company or personal scheme) are tax and NI free. As tax relief is available for individuals who contribute to approved personal pension schemes, the ultimate saving is NI, this being 12.8% for the employer and 11% or 1% for the employee, depending on their earnings. Some of the employer's savings could then be 'shared' with the employees.
Unless the employer operates a workplace crèche or similar scheme, most forms of employer provided childcare are currently taxable. However, if the employer provides the childcare, then there is generally no NI due. The employer would need to take responsibility for arranging and paying the cost of the places. These include commercial nurseries, childminders or childcare vouchers. Once again, this is currently a NI friendly option but from April 2005 the rules will change, so that a maximum of £50 per week of approved childcare costs paid by the employer will be tax and NI free. The limit will apply to each parent if they are in employment. Clearly, there will be winners and losers from this change.
Finally, it should be borne in mind that part of the working tax credit award relates to eligible childcare costs paid by the individual. By moving to the above arrangements the employee would no longer be paying those costs and hence the working tax credit award may be reduced. This could actually mean that some employees become worse off and care should be taken in this area.
Where an employer makes a computer available to an employee for private use, the first £500 of any tax charge that would otherwise arise is exempted from tax and NI. So, if the employer makes available computer equipment with a market value of £1,000, the benefit-in-kind would usually be 20% of this figure. As the benefit of £200 is less than the £500 limit, there is no tax charge. However, the exemption is not given if the computer facility is confined to directors and their families only.
The Inland Revenue has confirmed that the numberplate itself (that is the piece of metal or plastic with the numbers and letters upon it) is a taxable benefit. However, most of the value in personalised or cherished number plates lies in the intangible right to use a particular registration mark. This right is separate from the price of the plate itself and is not subject to tax or NI.
The provision of a car parking space at or near the employee's normal place of work is not subject to tax or NI. The interpretation of this is extremely wide and covers season tickets, direct payment or reimbursement by the employer. Consequently, a substantial daily cost of the employee can be rearranged to save tax and NI.
The provision of the use of an employer provided mobile phone does not result in a tax or NI charge, even where the employee is allowed to make private calls from the phone.
There is a ceiling of £8,000 on the tax and NI relief available against the cost of a move. Whilst this may not be a common occurrence, the savings can be quite large. However, the definition of qualifying costs is extremely detailed and we would be pleased to discuss these in more detail if this is of particular interest to you.
Beneficial loans are not taxable where the total outstanding amount at any time in any given tax year is less than £5,000 per employee.
The most commonly provided and the biggest perk for many employees is a company car. There is clearly a fundamental decision to be made at the outset as to whether to provide a company car or pay employees to use their own cars. The maximum tax-free mileage rate for employees who drive their own cars is 40p per mile for the first 10,000 miles and 25p thereafter. For NI purposes, 40p per mile is used irrespective of mileage. However, when considering company cars, there are several issues to bear in mind.
Car benefit-in-kind charges are calculated on the ‘list price’ of the vehicle, multiplying this by a percentage. The percentage is linked to the CO2 emissions of the vehicle. The lower the emissions the lower the charge on the employee and the Class 1A NI charge on the employer. Encouraging employees to choose lower emission cars will therefore result in a saving for both the employer and the employee.
The government has been keen to encourage cleaner cars on to our roads and technology is now starting to move on. There are a variety of discounts on the benefits-in-kind for electric, electric/petrol, LPG and petrol/LPG vehicles. However, the most widely available discounts relate to ‘clean’ diesels. Most mainstream car manufacturers now produce ‘clean’ diesels (known as Euro IV), which means that the 3% diesel supplement for company cars does not apply. This will reduce the benefit-in-kind to the employee and the Class 1A NI to the employer.
The maximum reduction in list price for a capital contribution towards the cost of the vehicle from an employee is £5,000. Provided that, on the sale of the vehicle, the employee will only be entitled to a proportion of his or her original contribution, the yearly reduction in list price will stand. This could be combined with the £5,000 interest free loan mentioned above. At the end of the term of the loan when the car is sold, the balance of the loan could be waived, which would generate a tax and NI charge on the waiver. The figures need to be worked through fully but savings can be made, particularly where the emissions on the vehicle are high.
The basis of the benefit-in-kind charge where fuel is provided to an employee who drives a company car is the percentage that applies for working out the company car benefit, which is then applied to a pre-set figure of £14,400. This benefit may or may not be cost effective depending on the cost of fuel and the private mileage driven. If private mileage is very low, it is highly unlikely that this benefit will be tax efficient.
The provision of a company van is currently subject to a maximum benefit-in-kind of £500 per year, which includes private fuel. This includes unlimited private mileage and unlimited private fuel. Obviously, it is highly important to ensure that the vehicle is classed as a van for tax purposes. The definition currently used is that vehicles that can legally carry a load of one tonne or more will be classed as a van. One of the practical effects of this is that some 'double cab' pick-up trucks might well be classified as vans.
From April 2005, provided that private use (other than from home to office) is prohibited, there will be no benefit-in-kind on the provision of a van. Major increases in the benefit, up to £3,000 and an additional £500 for private fuel, are to be implemented in April 2007. You may wish to talk to us about the steps required to avoid the charge from April 2005.