REMUNERATION PLANNING - 09.07.2015

Vouchers - a more tax efficient way to pay staff?

Voucher schemes

Non-cash voucher schemes are a well established alternative to salary and can work well instead of a pay rise. Flexible voucher schemes have the advantage over single benefits such as free medical insurance because they give your staff the option to purchase goods and services from a wide range of outlets, including online stores.

Basic schemes

Voucher schemes don’t have to be complex. You can set up and administer your own. For example, you could provide gift cards. Most of the big stores offer cards that can be topped up each month with whatever amount you want. However, you don’t have to go to the large firms; you might get better value for money from local traders.

Tip 1. Local shops, restaurants, gyms, golf clubs etc. will often be open to negotiation for discounts. For example, you might be able to buy a voucher worth, say, £100 for £90. This would give your employees more spending power but at a lower cost to your company.

Tip 2. The saving you make can be shared with your employees so you both gain as an inducement to take vouchers instead of a pay rise. Plus there’s an extra financial incentive for them courtesy of HMRC.

Tax and NI savings

As well as the chance of increased buying power for employees who take vouchers instead of normal pay, they can save between 2% and 12% NI. A worker earning no more than £42,000 per year who swaps £60 per week of salary for the equivalent in vouchers effectively increases their net remuneration by £374 per year through NI savings (£60 x 52 x 12% NI).

Voucher companies

If you want to give your employees more choice over where they can spend their vouchers, or you don’t want the extra admin involved in running your own voucher scheme, there are specialist companies that will do the hard work for you (see The next step ). Naturally, there’s a cost so check how much it is before signing up. The advantage of these marketed schemes is that your workers can buy from chains such as Next, WHSmith and online retailers like Amazon.

Trap. Steer clear of marketed schemes that offer vouchers which can be swapped for goods that in turn can easily be exchanged for cash, e.g. gold. HMRC has anti-avoidance rules to cancel any NI savings. Stick to retail vouchers for shops, restaurants, gyms, etc.

Tax-exempt schemes

Also worth considering are tax and NI-free vouchers. They are exempt if they can only be used to purchase goods or services that would be exempt if you provided them as a direct perk. For example, a voucher to rent a bicycle that qualifies for the cycle-to-work scheme.

For how to find companies that offer voucher schemes, visit http://tipsandadvice-tax.co.uk/download (TX 15.20.04).