The following Employment Tax guidance note by Tolley in association with Robert Woodward provides comprehensive and up to date tax information covering:
To consider setting up a flexible benefits scheme (see the Flexible benefits schemes ― an overview guidance note), it is important that employers are both aware of the consequences of the scheme and have checked that the relevant systems are in place.
Many employers simply consider flexible benefits schemes to be a straightforward method for delivering employer’s National Insurance savings through salary sacrifice (see the Salary sacrifice arrangements ― overview guidance note) but the reality is that in most cases, full prior consideration should be given to the consequences of the scheme. The most appropriate method is to undertake a feasibility study.
A flexible benefits scheme can cover benefits provided by salary sacrifice or benefits made available to employees to purchase from their net pay by taking advantage of their employer’s purchasing power (known as ‘voluntary benefits’) or a combination of the two. Consideration must be given to the basis on which the benefits will be provided and therefore the tax / NIC consequences of either approach.
Voluntary benefits are generally those where salary sacrifice is not necessarily the most appropriate, eg benefits to which employees do not wish to be tied in for a minimum period. There are few tax / NIC considerations applicable and as long as the employer requires the employee to make good (ie repay) the tax cost to their employer of providing the benefit, there is no tax or NIC liability.
Clearly, the first point to consider is which benefits to include in the scheme. The tax / NIC treatment of employee benefits is covered elsewhere (see the Optional remuneration arrangements guidance note) but it is important to consider that potentially any benefit can be provided via a flexible or voluntary benefits arrangement.
The extent of savings to be made and the attractiveness
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