As life starts to return to normal many SMEs are starting to focus on retaining key staff members to ensure operations remain smooth as demand rises. But what can business owners do to make their staff’s lives easier, save money on employment costs and improve and incentivise performance? Ian Goodwin from our Employment Taxes team provides 5 top tips to consider.
Tip 1 – Remote working
As we emerge from lockdown, working patterns may have shifted for good. There will be a balance to be struck between being office-based and working from home, potentially saving time and leading to rewarding changes. For example, you may look to offer your employees an income tax and NIC free home working allowance of £6 per week where they are working from home more regularly (say three days a week). This will increase their net pay and help you maximise reward efficiencies to stay ahead of the competition.
Additionally, you may look to enhance the office equipment you provide to employees to make working from home more efficient, effective, and comfortable. This may include upgraded laptops, company mobile phones, better furniture. Where the ownership of the asset does not transfer and they are provided for business purposes, there will be no income tax or NIC liability to report.
Tip 2 – Training
With society and demands adapting due to Covid-19, training your employees to learn new skills can make a difference to your business success. Additionally, it may be possible to reduce costs. For example, if you employ an apprentice under the age of 25, you do not pay employer NIC on their salary and you can utilise Government funding to pay for qualifying apprenticeship training. This will help reduce training costs, and it may help retain and recruit key talent, particularly where training aligns with the need for new skills as lockdown eases.
These apprenticeship programmes are not just for school leavers but for employees at all levels of the business, even those in senior positions. Alongside the Apprenticeships on offer, the Government has also created a “Help to Grow” scheme that all qualifying SMEs can access to help build for the future. You can find out more here.
Tip 3 – Christmas greetings
The annual Christmas Party was cancelled for many 2020 (unless if went virtual), but the annual function exemption of £150 per head and trivial benefit exemption for gifts under £50 remain available. These tax benefits are likely to be more important than ever as employees return off furlough (to read more about CJRS please see our FAQs) and start to work from offices and business locations again. Being aware of these tax exemptions could help you avoid unexpected liabilities and assist the budget process.
Tip 4 – Go electric
A lot of major purchase decisions were delayed last year. One example was the deferral of a change of vehicle, as collectively there was a significant reduction in average miles driven to as little as one-third of the previous peak. As we adapt to these changes and consider the environmental impact of how we operate, electric vehicles are likely to become more popular. Significant income tax and NIC savings can be achieved by choosing an electric or hybrid company vehicle compared to a traditional diesel company car. By way of comparison:
- A Tesla Model 3 with a list price of £40,000 will have an annual income tax bill of £160 for the employee and annual employer Class 1A NIC charge of £55;
- A BMW 3 Series of the same value with 132 g/km will have an annual income tax bill for the employee of £4,800 plus employer Class 1A NIC of £1,656.
That’s an annual saving of over £6,000 (the employer saves at c. £1,600 in Class 1A NIC). As well as the savings on the car itself, savings will also be made on travel costs (given electric travel is likely to be cheaper than diesel or petrol).
This reward strategy could also help the business improve its sustainability and carbon efficiency rating. Salary Sacrifice may help improve the tax efficiency of the way this reward option is made available.
Central to this could be making use of EV Charging points as part of a reward strategy, both for those who may have access to a company vehicle and those who do not, given this could encourage a change in vehicle choice. The tax aspects need to be considered but significant cost savings could be created, as well as demonstrating to employees that sustainable behaviour is a core part of your reward strategy.
Some SMEs are going even further by partnering with EV and energy providers to source and help install solar panels, heat energy pumps, better energy tariffs etc. Again, there are tax aspects to consider but the employee may well enhance their overall reward while employer costs reduce.
Tip 5 – Introduce Pension Salary Sacrifice for your workforce.
Auto-Enrolment places a legal requirement on employers to help their employees save for retirement. Where an employee contributes into a pension scheme, they get tax relief (typically via the pension scheme), but both the employer and employee pay Class 1 NIC on the employee’s pension contribution.
However, NIC can be saved for both the employer and employee by introducing Pension Salary Sacrifice. This will provide a net pay increase to the employee and reduce Class 1 NIC costs for the employer. In effect, the employer pays an amount equivalent to the employee’s pension contribution in exchange for the employee reducing their gross pay by the same amount.
By way of an example, for every £1,000 sacrificed, the employee will increase their net pay by £120 per year (if earning less than £50,000 per year) and the employer will save £138 per year. Additionally, if your employee is a higher rate taxpayer (pays tax at 40%) and salary sacrifice for pension contributions is not used, they may need to submit a claim to HMRC for the additional tax relief they are due. This is because the pension scheme will only claim basic rate (20%) tax relief from HMRC for employee contributions received (assuming tax relief isn't provided through payroll). However, where they participate in the pension scheme via salary sacrifice, they will get all their tax relief they are due automatically via payroll. If employees think they have not claimed the additional tax relief due on employee contributions; it may be worth their while reviewing their tax position and making a retrospective claim.
Further, you can also offer employees the option to exchange their bonus for an additional employer pension contribution. As always, care needs to be taken in determining the time at which an employer pension contribution is tax-deductible for the business.
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