Benefits & Incentives For Employees: Tax & National Insurance Position

Benefits & incentives for employees can form an attractive element of any employment package and can be a way to not only reward employees for their efforts but can be a way of retaining existing staff, boosting productivity and increase morale and loyalty of your workforce. Furthermore it may also persuade people to join your business. The provision of benefits and incentives to employees will have a cost to your business and most financial rewards (cash and non-cash) provided to employees will also have tax and national insurance contributions (NIC) implications for them. Reportable benefits in kind need to be reported on form P11D and the employer will also have to complete form P11D(b) in respect of their Class 1A NIC liability. There are of course certain types of tax-free benefits that can be provided to employees as well.

SALARY SACRIFICE

If benefits are provided to employees as part of a salary sacrifice arrangement you will have to consider the new optional remuneration arrangement (OpRA) rules. These rules were introduced from 6 April 2017 and mean that the tax and national insurance advantages previously enjoyed by employees who give up part of their salary in exchange for receiving a benefit in kind (including a tax-free benefit) have largely been withdrawn. There are certain benefits that can continue to be provided under a salary sacrifice arrangement which is exempt from the OpRA rules, therefore, it is still possible for tax and NIC savings to be made in respect of certain benefits where they are provided under a qualifying salary sacrifice arrangement. In addition, intangible benefits provided under salary sacrifices arrangements, such as extra annual leave or flexible working hours are not caught by the OpRA rules.

PAYE SETTLEMENT AGREEMENTS

Even where a taxable benefit charge does arise, employers can apply to HMRC to pay the tax and NIC due on certain benefits in kind and expenses provided to employees via a PAYE Settlement Agreement (PSA). A PSA can cover minor or irregular benefits, such as Christmas gifts that exceed £50 or staff entertaining outside of the annual function exemption. High-value benefits such as company cars cannot be included within a PSA and neither can cash payments.

PAYE HEALTH CHECK

We can provide health checks covering all matters relating to employer compliance. By working with you we can fully review the systems and record keeping processes you have in place to ensure that they are suitably robust to satisfy HMRC expectations. Our tax consultant, Elaine Grose, specialises in all issues relating to PAYE/NIC, expenses and benefits, employment status, IR35, construction industry scheme and national minimum wage. Julia spent over 27 years with HMRC working exclusively as an employer and construction industry scheme compliance expert and has a unique understanding and insight into HMRC’s approach to inquiry work. If you feel this is something that you may benefit from please call us for a fee quotation.