There is no excuse for Scrooge-like bosses this Christmas as there are plenty of ways to award staff a bonus and many won’t cost the business a penny, says tax expert Roy Maugham at accountants UHY Hacker Young.
Employers can provide a phone for an employee and pay the bills. The cost of the phone and the bills are then deducted from the employee's wages. Because these payments are taken from gross earnings, before deductions - tax and national insurance (NI) bills are deducted for the employee and the boss saves on NI, or passes the saving on as a pay rise.
In more good news, mobile phones need not be used for work. Families can also benefit as the tax break lets the member of staff have two phones and a further three for family. The money saved depends on how large the phone bills are.
High earners taking five phones could save almost £1,000 a year. They’ll save at least 33% off the whole package and anyone earning £31,000 or more saves 41%.
Bosses can provide staff with computer equipment, up to the value of £2,500. Employers usually lease rather than buy the equipment from a supplier running a Government backed Home Computing Initiative scheme, and then lease it on to the employee at no cost to the boss. Lease costs must be no more than £500 a year.
Lease costs are then deducted from the employee’s salary, no tax or NI is paid on these repayments. The employer owns the equipment but is permitted to sell it for as little as £50 to the employee who benefits from the cheap rate.
Childcare vouchers are free of NI for both employer and employee. However, from 5 April the vouchers will additionally be free of tax, although the value will be capped at £50 a week. This tax break will make a huge difference to the value of the vouchers, particularly for higher-rate taxpayers.
On yer bike
The Cycle to Work Initiative saves employees 40-50% off the cost of bicycles and accessories. The company should buy the bike and lease it to the employee. At the end of the lease period the bike can be bought for the price of a month’s lease.
Companies can also offer free meals and drinks to employees who cycle to work. If the meals are provided on a specially designated ‘cycle-to-work day’, they can be a nice tax-free incentive for employees.
Season-ticket loans to cover the cost of public transport are another benefit. This is tax-free under £5,000 and the loan can be used for other purposes as long as company policy allows.
Changes to the Financial Services Authority regulations mean employers can offer financial information and advice up to a value of £150 per person tax-free for the employee.
Time to party!
The VAT-inclusive cost of an annual staff party can now be tax-free up to £150 per employee. Employees receiving gifts from suppliers at Christmas need not be taxed unless the VAT-inclusive value of the gift exceeds £250.
Making sure staff are rewarded with tax efficient perks and benefits is an important way to minimise tax liability and motivate employees.
Further details are contained in the Inland Revenue Booklet 480, Expenses and Benefits.