Many employers are facing challenges when it comes to employment costs, warns London-based accountancy firm RDP Newmans, but there are alternatives to a regular salary that businesses should explore.
From April, businesses will see their employment costs rise significantly as the 1.25 percentage point increase to National Insurance comes into force and the National Minimum and Living Wage rates rise.
On top of this, many businesses are currently competing to recruit the best workers and retain key employees; often increasing salaries to secure the best candidates.
Given the other costs that many businesses face – not least the rising price of fuel and energy – increases in workers’ traditional salaries may not be the best or most tax-efficient option says RDP Newmans.
Riki Gangola, a Partner at the firm, said that any increase in a person’s regular salary will attract additional income tax for the individual, as well as a higher National Insurance bill for employers.
He said: “There are a couple of ways to reduce the amount of National Insurance and tax that is paid when remunerating a worker.
“This could range from paying more into a pension tax-free, with their permission, to offering salary sacrifice schemes which pay tax and National Insurance rate as a benefit in kind.
“At the moment electric company cars are particularly tax-efficient and could offer a great incentive to an employee instead of a wage increase. Both lowering their tax bill and also reducing the costs of travel for them.”
He added that while dividend payments to employees who were shareholders were traditionally seen as a way of minimising tax and National Insurance costs, the 1.25 percentage point increase to dividend tax rates above the £2,000 annual allowance meant that these were slightly less attractive.
“The increased rate of dividend tax reduces the benefits of these payments, but they are still more tax-efficient and attract less National Insurance than a regular wage or salary, so they should be explored as part of a company’s wider tax-efficient salary plans,” added Riki.
If you need assistance with managing your company’s employment costs, please contact us.
