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Tax-free alternatives to salary rises

Many businesses are now reviewing staff salaries. Increasing a salary is easy but it may not be the cheapest solution.

Remember, a £100 a year increase in salary will cost a further £12.30 a year in employers’ National Insurance costs. This cost increases to £13.30 a year from April 2011.

Instead of giving a payment in cash, why not give your valued team member a tax-free perk?

A company mobile phone would be universally popular. A mobile provided and paid for by your employer is not a taxable benefit even if you never make any business calls. The phone contract must be in the name of the employer. From the businessman’s point of view he still claims the costs as an expense but he does not pay any National Insurance on the benefit. From a financial view, you may want to limit the amount of free calls.

The same rules apply to a free parking space. Many of us use our cars to travel to work. The daily cost of parking the car near where you work could cost you £10 a day. The employer providing a parking space by, say, buying a season ticket would again be a tax-free benefit with no National Insurance cost for the company.

If the team member does not drive, you could consider providing a works bus to bring people to work or provide a free bicycle. As long as the bicycle is used mainly for travelling to work, it is again a tax-free perk with no National Insurance consequences.

Making a pension contribution for them is another way to reward your team without incurring a National Insurance charge, but the rules do become very complicated for people earning more than £150,000 a year.

I have saved the most important tip to last. The pressure of running a business can make you ill. You need to ensure you are working at your best. We service our cars but how often do we MOT ourselves? A health screen is another tax-free benefit. It could be the one that saves your life.

One Response to “Tax-free alternatives to salary rises”

  1. Andrew; we awarded phones & lap-tops to our top people last year and allowed them work-place flexibility when circumstances dictated by arranging remote links to our server… has proven invaluable in the present weather conditions. I like the health screen idea……Vince

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