By Michelle Quince, Senior Accountant at Hive Business
There are a myriad of situations where instant gratification can be put aside for the greater good. A night-in instead of a night out so that you can save up a deposit for a house. Studying for exams so you can qualify and earn more money. Going to the gym regularly so that you can lose those few extra pounds. It’s all about giving something up to get something in return… even if you may have to wait a little while for the return.
It’s the same for your employees, there are certain schemes where they can give up part of their salary in return for a benefit. However, benefits provided to employees can be a bit of a minefield and HMRC revised the provisions for “Salary Sacrifice” schemes back in April 2017 so I thought it would be worth outlining what schemes are still permitted and don’t give rise to additional tax or national insurance for either your business or for your employees:
I’ve written a lot about workplace pension schemes in the past, I made reference to salary sacrifice pension schemes. This is where the employee agrees to sacrifice a proportion of their salary in exchange for an investment in a pension scheme. This means that for a relatively small reduction in their take-home pay, the employee can contribute 25% more into their pension pot each month.
Childcare voucher scheme
These do still exist but only for those that enrolled in the scheme before October 2018. Here employees sacrifice a proportion of their salary in return for payments towards childcare – either arranged through a third-party agency, or directly-contracted arrangements between your business and the employee’s childcare provider. For employees that didn’t enrol before the cut-off, HMRC do have a number of other options to assist with the cost of childcare but these are now dealt with outside of their employment.
Cycle to work scheme
20 years ago, in an effort to encourage us all to improve our health, reduce congestion and improve air quality, the Government introduced the “Cycle to Work” scheme. The main themes of the scheme have stayed the same since then:
- an employer purchases a cycle and loans it to an employee for a set hire period;
- the employee pays for the use of the cycle via a reduction in their salary (where payments usually result in the recovery of the original cycle’s purchase price);
- at the end of the hire period, the employee can either extend the hire agreement, return the cycle or buy the equipment outright for an amount predetermined by HMRC.
For cycles costing less than £1,000, the employer can usually make all the necessary arrangements. But, because this arrangement is essentially an interest-free loan to an individual, if the cycle costs more than £1,000, it’s likely you would need to use an external agency (e.g. Evans Cycles; Cyclescheme) unless your business is registered with the FCA.
The scheme can also cover the loan of cyclists’ safety equipment (e.g. helmet; child safety seats; reflective clothing; etc). Plus, the scheme is open to all employees, even Directors, providing they are earning a salary over the basic rate tax band.
Before you start implementing any salary sacrifice scheme, there are two very important considerations. Firstly, any scheme must not reduce an employee’s cash earnings below the national minimum wage rates (although I should highlight that NMW does not normally apply to Directors). And secondly, salary sacrifice arrangements represent a change in your employee’s employment contract therefore, the details should be put into writing and signed by both parties.
If you’re interested in any further information on the schemes outlined above, please get in touch.