91探花

The lead up to the Autumn Budget on 30 October creates an uncertainty that is bad for business. One thing for sure is that employment costs (including salaries, bonuses, benefits, National Insurance contributions (NICs), apprenticeship levy, etc) are continuing to rise.

With this in mind, we explore a couple of ideas to help manage your employment costs.

Share-based awards

Historically, UK governments of most political persuasions have encouraged and supported employee ownership of company shares through tax incentives.   

Awarding share options can motivate teams or key management, and provide employers an opportunity to top up compensation with comparatively little outlay per person. 

Designing the award to hit the right level of incentive and potential reward takes some skill. Getting it right with a qualifying tax advantaged share plan (such as an enterprise management incentive (EMI) or company share option plan (CSOP)) can mean any gains by employees are subject to capital gains tax instead of the generally higher rates income tax, while saving the employer NICs and the related pay as you earn (PAYE) compliance. Employer companies could also receive a corporation tax deduction.

Less well known are share incentive plans (SIPs), which allow employees to buy shares out of pre-tax salary, saving them both income tax and NICs, as well as giving a NICs saving to the employer. Free and matching shares can also be given so employees effectively get shares at a highly discounted price. This works well when bonuses are due, so that a portion of bonus is effectively sacrificed in return for shares. Shares are held in trust for the employees, but dividends can be paid on them and after five years the value of the shares received, and any capital gains arising can be completely tax-free.

Salary sacrifice

Buying shares through a SIP is like making a salary sacrifice. There are fewer arrangements these days where salary sacrifice is effective, but don’t forget qualifying pension contributions, where this type of arrangement continues to work well. For example, if participating employees contribute a total of £200,000 per annum to their pensions, the employer could achieve NICs savings of almost £28,000 per annum, with up to £16,000 per annum shared between the participating employees. This totals an annual NICs saving of c£44,000. The pension salary sacrifice opportunity is low risk, HMRC approved, and 91探花has successfully implemented such arrangements for our own employees. It can deliver on a wide range of corporate objectives and benefits both the business and employees.

For more information, please get in touch with Fiona Bell or your usual 91探花contact.