What sort of benefits and incentives can an employer provide to their directors and employees? Do benefits form part of an employment contract?
This is a freeview 'At a glance' guide to employee benefits and incentives.
Employee benefits and incentives
- An employment package can be structured to maximise a combination of low tax and tax-free benefits.
- Employee benefits do not need to be tax-free in order to bring an advantage to employees: an employer can bulk purchase and buy-in benefits at a substantial discount compared to the cost to an individual if they made a similar purchase personally.
- The employer will in most cases qualify for tax relief whether a benefit is tax-free or subject to Income Tax and National Insurance.
- An employee benefit trust may be used to provide a range of different benefits, but is likely to result in tax charges.
- Share schemes have the dual advantage that they motivate the employee to add value to the company as well as acting as a tax-efficient way to reward employees.
What types of benefits can you offer?
- Tax-free: our list of Tax-free Benefits In Kind and perks illustrates the most popular tax-free benefits available.
- Cars and Vans: Employment Car Ownership Schemes (ECOS) or the provision of a range of zero and low-emission vehicles, which attract only a small Benefit In Kind; these are explained in more detail in our guide to Company cars.
- The benefit in kind charge for zero-emission cars in 2022-23 is minimal, see CO2 Emissions, Low Emissions Cars
- For 2022-23, zero-emissions vans do not attract a benefit in kind, see Van low emissions benefits
- Pension contributions: an employer can make any level of contribution into an employee's pension scheme, subject to annual and lifetime contribution limits and the wholly and exclusively rules where an Income Tax or Corporation Tax deduction is claimed. There is no taxable benefit charge or NICs. Alternatively, an employer may set up its own scheme. See Pensions tax rules and planning
- Share schemes can be one of the most tax-efficient and successful ways to reward staff, see Share scheme basics
- Trivial benefits: certain benefits are so small that they are not taxable, see Trivial benefits.