Incentivising employees

If you are an employer and chose to reward or incentivise an employee it is likely to involve paying them a bonus of which tax is due by both you and them.

There is however a number of non-taxable benefits that can be used in replacement for this and in certain circumstances may be more tax efficient.

For example, the cost of an employer providing one mobile telephone for an employee is not a taxable benefit. The exemption covers the telephone itself, any line rental and the cost of private calls paid for by the employer on that telephone.

We will assume in this example that the average annual cost of a mobile phone contract is £480 per year. An employee who is a basic rate tax payer needs to earn just over £700 in gross terms to be able to pay this out of their net income. The employer also pays just under £100 in national insurance meaning that a total of £320 is paid to the tax man.

If an incentive was offered to the employee to offer a mobile phone as appose to a bonus or salary increase there can be tax savings made.

A mobile phone has been used in the example but in theory it could be replaced by another non-taxable benefit some of which are listed below: 
– The provision of a car park space near to the place of work

– The provision of a bicycle and protective clothing

– The provision of qualifying life insurance cover

– The provision of child care vouchers

– The provision of meals in a staff canteen providing that they are available to all employees

As an employer you are also able to make a small loan to your employee providing the amount does not exceed £5,000. The loan is not taxable as a benefit even if the employee doesn’t pay any interest.

HMRC help sheet 207 ‘Non-taxable payments and benefits for employees’ give further examples where exemptions or concessions apply.

Other ways to incentivise employees may involve employee share schemes and formally constituted staff suggestion schemes. There are four HMRC approved employee share schemes but they are not discussed in this article however if you have an employee that you would like to incentivise by offering shares in your business please call us today to discuss your options.

Formally constituted staff suggestion schemes include encouragement awards of up to £25 and financial benefit awards up to £5,000. If one of your employees makes a suggestion that could lead to an improvement in your businesses efficiency or effectiveness and you adopt this suggestion, if there is a financial benefit to your business, you may be able to make a tax free award to recognise that employee’s suggestion.

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