By Ian Rummels
Salaries are largest single cost to any business, together with the accompanying employer National Insurance Contributions (NIC), currently 12.8%.
There are many accepted and well-known ways of saving this charge and paying less money to the Revenue. These usually require a salary sacrifice agreement. Common schemes are through pensions, childcare vouchers, extra holidays and even obscure items such as bikes for work. The employer saves money by paying less NIC and the employee saves money on both tax and NIC.
There are many exemptions within the tax and NIC code and it requires an enquiring mind to do imaginative planning in a non-aggressive manner. Here are some of the options available:
With the Government-backed childcare voucher scheme, an employee agrees to a reduction in salary in exchange for a non-taxable childcare voucher up to a value of £55 a week. This can be used to pay for any type of registered or approved childcare for youngsters up to 16 years old. Employers running childcare voucher schemes can save up to £373 per employee, per annum in NIC savings alone.
The bikes for work scheme involves the employer providing an employee with a bike for a period of time to use predominately for work (50% of the bike’s usage) while the employee sacrifices part of their salary to fund the bike. These payments are made free of tax and national insurance, which means that the employee gets the bike for significantly less than he or she would normally pay. In turn, the employer makes NIC savings. The employee can then buy the bike at the end of the term at the current market rate.
Employers can also save money by using more imaginative salary sacrifice arrangements to save employer and employee NIC. Some of the more interesting possibilities are training costs which an employee may normally fund themselves. The key is to show that the training is beneficial in the current job or for a future job.
If an employer, such as a university or hospital, charges employees for car parking it is also possible to save money here. The employee could sacrifice some of their salary for 12 months in return for free parking. Again, the employee can save on both tax and NIC charges, while the employer can save NIC charges.