19.7.2022 | Tax

Remuneration planning - ways to achieve tax savings for both company and employees

Think smarter about employee remuneration.

Planning remuneration packages that show appreciation of employees but are also tax-effective and reduce the net cost to the company, is part of a sound approach to business finances.

While most businesses want to reward and support their staff, directors do have to be mindful of how to manage costs in the process.

It’s worth keeping in mind then, that any expenditure on benefits or employee remuneration arrangements is generally deductible for corporation tax.

Here, head of taxation at Beatons, Andrew Diver, gives an overview of ways to remunerate employees through benefits which will help save money for companies and employees alike.

Company mobile phones
Offering an employee a mobile phone can be quite a valuable tax-free benefit in kind as there is a tax and national insurance exemption if structured correctly.

The employer should set up the contract in the company name and provide the phone, rather than have the employee do this and then reimburse the phone costs as part of a salary. The cost is tax deductible for the company against corporation tax, but the employee receives the benefit tax and national insurance free, and there are no limits to the value, with the provision that it can only be a single mobile phone.

Trivial benefits
Trivial benefits are non-cash amounts incurred by an employer of a value up to £50. They cannot be a reward for service but can cover items such as flowers, vouchers or gifts on birthdays, weddings or for similar events.

Annual event expenditure
Often described as the ‘Christmas party exemption, ’ expenditure for annual events can be provided without any tax charges for the employee. The cost of annual events, such as staff parties, teambuilding or annual conferences, can be provided tax-free as long as they do not exceed £150 per head.

Employee share ownership trust
This is an arrangement where the majority of the company shares in issue are owned by a trust. Typically, these arrangements are to help a departing founder to have recognition for the value built up in the company without having to find an external buyer. Employee share ownership trusts have the added benefit that they allow annual bonuses of up to £3,600 to be paid to employees tax-free.

Pension contributions in place of bonuses
Often it is more beneficial for an employee to sacrifice receiving a cash bonus in exchange for the amount to be paid into their pension fund.

Not only will this save the employer national insurance, but it also can prevent employees from being liable to exceedingly high rates of tax where income exceeds £50,000 or £100,000.

Benefits related to loaning money to the company
There are situations in which owners or directors of businesses might loan their company an amount of cash instead of the company applying for a more traditional finance arrangement from a bank, for example.

The director could charge the company interest on the loan, and the company can deduct the interest paid as an expense for corporation tax purposes. The director would pay tax on the interest but not national insurance.

There are many other ways to offer employee benefits which also bring a company, plus the employee, tax relief. To ensure your business is as efficient as possible in this area, Beatons has all the expertise and is happy to advise.

Email info@beatons.co.uk or call 01473 659777.