Perks for staff that carry tax benefits
Consultants who want to reward their employees in a tax-efficient manner this Christmas have a wide choice of options. Willie MacKenzie presents seven of the best.
Tax-efficient rewards for your private practice staff enable them to pay no tax or less tax than the value of the benefit they are receiving. And, often, you as an employer get a tax benefit too.
1 Staff Functions
An employer can now pay up to £150 (including VAT) per head on staff Christmas parties and other annual functions without this constituting a taxable benefit on employees. Although this rate is generally attributed to Christmas functions, it applies to all annual parties or functions - including the summer barbecue if appropriate. Additionally, it must be generally available to all employees - not just a select few.
TIP
This tax-free benefit is particularly attractive to the small, one-person company. For instance, provided the function is an annual event, it should be possible for the company to invite its sole employee (you) and guest (your spouse/partner) to its annual party or function. This could even be extended to birthdays, as they, by any definition, are an annual event.
WARNING
The annual limit is cumulative and you must take care to ensure that the expense does not exceed the limit or the full amount will be taxable. For example, if there were three annual functions at £70 each, the exemption would cover two of them and you would be taxed on £70.
2 Personal Pensions
Pension contributions paid on behalf of employees and directors into an approved pension scheme are tax-deductible for the employer and are not taxable on the employee.
And pension contributions paid by the employer are not subject to employers' national insurance.
When the employer pays a contribution into the employee's pension scheme, it is also free of employee's national insurance. If the employee pays the same contribution themselves, the amount paid must be deducted from pay after national insurance has been charged. As a result, a pension contribution paid by the employer saves employees' as well as employers' national insurance.
TIP
As part of your employees' remuneration package, consider setting up a stakeholder scheme or contributing to your employees' personal pension. This can be an attractive perk but remember to regularly remind staff how good it is. They have a habit of forgetting.
3 Child-care Vouchers
In the 2004 Budget, the chancellor announced that, with effect from April 2005, child-care vouchers up to the value of £50 a week can be given to employees free of tax and national insurance.
To qualify:
- The benefit must be available to all employees - not just a selected few
- The child carer must be registered or approved by the local authority.
TIP
Although this measure might be considered to be less than generous, it will make a big contribution to employer-supported child-care schemes and is available to all employers - not just large ones. There is scope for designing a flexible tax-efficient remuneration package that would benefit both consultants and their employees, including secretaries.
WARNING
The new proposals do not extend to child carers who are not registered with the local authority, nor do they apply to nannies.
4 Mobile Phones
Since 1999, the personal use of mobile phones provided by an employer has been free of income tax and national insurance. There is no limit to the amount of personal use and the expense is tax-deductible for the employer.
TIP
The exemption relates to employer-provided mobile phones. The situation is quite different where the employer meets the personal liability of an employee. If the employee contracts to pay the mobile phone bills but they are in fact paid by the employer or, alternatively, the employer reimburses the employee, then the amount paid for private calls is liable to tax and national insurance.
WARNING
I cannot say it too often - get the contract in the name of the employer as paying an employee's debt counts as pay for tax and national insurance purposes.
5 Employee Loans
Cheap or interest-free loans granted by an employer to an employee are free of any benefit-in-kind charge to income tax, provided:
- They do not exceed £5,000;
- The staff member is not a shareholder in the company.
TIP
This is particularly helpful for a hospital consultant providing his secretary with a season ticket loan. This perk's value should be greater in future, with the projected rise in interest rates.
WARNING
Be careful not to write off or waive the loan. This would be treated as taxable income in the hands of the employee. The only exception from a tax charge would be the employee's death.
6 Free Parking
Where an employer provides free parking or reimburses the cost of a parking space at or near an employee's place of work, there is no tax charge on the benefit to the employee.
TIP
This is a useful concession and means a tax-free benefit-in-kind for employees. Rather than paying each employee between, say, £500 and £1,000 a year to cover their car-parking season ticket costs, it would be more tax-efficient for consultants to buy their employees' season tickets for them. This way, employees avoid having to pay their parking costs out of after-tax income.
7 Computer Equipment
Computer equipment worth up to £2,500 can be loaned to an employee without him or her paying any tax or national insurance on the benefit-in-kind.
So a consultant could buy computer equipment that is eligible for tax relief in his hands and then loan on to the employee tax-free.
WARNING
To achieve this tax-free status, there must be a loan of the equipment rather than a transfer of ownership, though this could be achieved by the simple expediency of ensuring the loan period exceeds the useful life of the computer equipment, which tends to be fairly limited. The benefit does not escape tax if the equipment is provided only to directors.
Willie MacKenzie is a chartered accountant and tax adviser specialising in hospital consultants. He can be contacted on 01483 419922, by email at wtm@accmac.plus.com or visit www.wesaveutax.co.uk
