Do you provide taxable benefits for your staff? Think again
Employers are providing a greater value of taxable benefits to their staff than ever before, according to new figures from HMRC – but significant changes to salary sacrifice schemes mean many company benefits may become too expensive for the recipient.
Provisional figures for the 2016-17 tax year suggest that the total taxable value of benefits provided by UK employers reached £8.3bn, up from £8.1bn in 2015-16. In 2014-15, it stood at £7.6bn.
Private medical and dental insurance was the most widely received benefit among UK employees, used by 65% of those receiving benefits, followed by cars and excess mileage allowance.
However, changes to salary sacrifice schemes mean this could represent a high watermark for benefits. Since April 2017, tax advantages have been removed from a range of perks normally purchased through payroll schemes, including health checks, gym memberships, parking and accommodation, as well as most company cars.
Company benefits are a good way for businesses to recruit and retain the best talent but as HMRC ratchets up tax rates on some perks, there may come a time where the size of the tax bill outweighs the benefits.
Experts have speculated that the most recent changes to salary sacrifice could prompt employers to cut back both the range and size of benefits on offer. In particular, the HMRC report suggested that tax changes affecting company cars may already be impacting on the value of benefits provided. Since April 2017, drivers using a new company car have been taxed the higher sum of either the benefit in kind value of their car, or the value of their cash alternative.
While the overall number of people receiving workplace benefits increased slightly in 2015-16, the trend of higher-income earners receiving higher-value benefits in kind persisted. The report highlighted a direct correlation between the average value of benefits and increasing income, among both employees and company directors.