salary sacrifice scheme - hypothetical - would it work
Discussion
Salary Sacrifice schemes - already applied to a few areas where the benefit in question attracts some form of tax break for the employer (ie pension payments or company car provision).
So, you contractually reduce your employees salary by an agreed amount. They receive less pay, therefore pay less PAYE and NI. You as an employer then pay less Class 1A NIC (ie 12.8%).
The bit you deduct you them either put into the pension, or use to pay for the company car or whatever.
THis can apply to many benefits.
However, would it reap any benefits if you applied it to the employees utility bills?
Let's say you contractually reduce each employees salary by £60 per month. Now, for peronal bills (according to the HMRC here: http://www.hmrc.gov.uk/employers/ebik/ebik2/person...
there is no PAYE for the employee on the benefit, but there is class1 NI. There is no Class 1A NIC payable by the empoyer.
Would a scheme like this be worth the additional admin work for a company with, say, 150 employees?
I think most employees would spend at least £60 month on electric and gas - so a £60 pound salary sacrifice subsidy would entail:
£9000 per month sacrifice
If no class 1As paid on this, reduces employer NI bill by £1152 per month
reduces employees tax bill
employees NI stays the same.
For an annual saving of £13k to the employer - and effectively reduced utility bills to employees (most of the bill paid out of gross wage sacrifice).
Or is it tax avoidance??
Edited to add
Where the guide says ' No Class 1A NICs payable' WILL IT STILL GET PICKED UP ANYWAY ON THE p11d??
So, you contractually reduce your employees salary by an agreed amount. They receive less pay, therefore pay less PAYE and NI. You as an employer then pay less Class 1A NIC (ie 12.8%).
The bit you deduct you them either put into the pension, or use to pay for the company car or whatever.
THis can apply to many benefits.
However, would it reap any benefits if you applied it to the employees utility bills?
Let's say you contractually reduce each employees salary by £60 per month. Now, for peronal bills (according to the HMRC here: http://www.hmrc.gov.uk/employers/ebik/ebik2/person...
there is no PAYE for the employee on the benefit, but there is class1 NI. There is no Class 1A NIC payable by the empoyer.
Would a scheme like this be worth the additional admin work for a company with, say, 150 employees?
I think most employees would spend at least £60 month on electric and gas - so a £60 pound salary sacrifice subsidy would entail:
£9000 per month sacrifice
If no class 1As paid on this, reduces employer NI bill by £1152 per month
reduces employees tax bill
employees NI stays the same.
For an annual saving of £13k to the employer - and effectively reduced utility bills to employees (most of the bill paid out of gross wage sacrifice).
Or is it tax avoidance??
Edited to add
Where the guide says ' No Class 1A NICs payable' WILL IT STILL GET PICKED UP ANYWAY ON THE p11d??
Edited by johnfm on Friday 17th October 17:46
Plotloss said:
Dont salary sacrifice schemes have to be pre-agreed with the revenue and have some sort of entry criteria?
For instance you can have a nanny on the childcare voucher scheme but that nanny has be on the childcare register, if they arent you cant.
You have to propose your scheme to them and they will say yay or nay.For instance you can have a nanny on the childcare voucher scheme but that nanny has be on the childcare register, if they arent you cant.
In the instance above, it's basically a tax dodge and they'll tell you where to go.
A quote from HMRC themselves.....
"When is salary sacrifice not effective?
A salary sacrifice is not effective if, in practice, the arrangement enables the employee to continue to be entitled to the higher level of cash remuneration. In other words he has merely asked the employer to apply part of that cash remuneration on his behalf."
The existing schemes that are about that I know of are the childcare ones and the cycle to work scheme, both part of government initiatives in terms of family friendly working and healthier lifestyles and environmentalism.
I'll fairly confidently say now that paying employees household bills is likely to receive a swift kick to the testicles.
My understanding is that in general, salary sacrifice is only 'worth it' (i.e. added admin etc) for benefits with a tax exemption - like childcare vouchers, pension contribs., compnay car payments.
But, the HMRC don't kick you in the nuts when you provide gym membershio, for example.
I would think that at a time when utility bills are going sky high, an effective way of improving an employees package WITHOUT just paying them 5% more would be to offer a utility subsidy.
If you look onthe HMRC website, there is a comprehensive A-Z index of benefits and how they must be treated for PAYE, Class 1 NIC (ie employee), class !A NIC (ie employers ) and the P11D treatment.
Personal bills is one category - but you can supply personal mobile phones, dental, health checks - all sorts really.
I'm just thinking outside the box a little re: improving employees packages in a non-cash way with some benefit for them and the employer.
Anyone here work for a employee beneftis co??
But, the HMRC don't kick you in the nuts when you provide gym membershio, for example.
I would think that at a time when utility bills are going sky high, an effective way of improving an employees package WITHOUT just paying them 5% more would be to offer a utility subsidy.
If you look onthe HMRC website, there is a comprehensive A-Z index of benefits and how they must be treated for PAYE, Class 1 NIC (ie employee), class !A NIC (ie employers ) and the P11D treatment.
Personal bills is one category - but you can supply personal mobile phones, dental, health checks - all sorts really.
I'm just thinking outside the box a little re: improving employees packages in a non-cash way with some benefit for them and the employer.
Anyone here work for a employee beneftis co??
If the company pays the utility bill of the employee, you are correct that Class 1 NI is payable and not Class 1A, however, what you are not taking into account is that there are 2 parts to Class 1 NI, primary and secondary (or employee's and employer's) You as the emplolyer, would still have to pay 12.8% NI on the bills. Also, although the paying of the bills is not subject to PAYE, it is a benefit in kind and would be taxable through the P11D, in the section that does not apply class 1A NIC to the benefit.
Salary sacrifice is only really worthwhile for things that are entitled to tax relief e.g Childcare vouchers or pension contributions.
Salary sacrifice is only really worthwhile for things that are entitled to tax relief e.g Childcare vouchers or pension contributions.
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