Employers across a wide range of sectors are experiencing ongoing difficulties with recruitment and finding suitable candidates to fill their open vacancies.
The pandemic also provided a period of reflection, leading to a wave of people looking for a change in career and taking on a new challenge, exacerbating the problem for some industries.
Beyond offering a competitive salary, there are a number of tax efficient benefits that businesses could consider, to help recruit and retain their staff.
We explore seven incentives below that could help Gloucestershire businesses stand apart in a competitive recruitment market.
About the expert – Katie Williams, of Hazlewoods LLP
Katie Williams joined Hazlewoods as a senior in the tax team in 2007, qualifying as a chartered tax advisor in 2010.
Hazlewoods is a UK Top 25 independent business advisers and chartered accountants, with an established sector expertise hard to find elsewhere. Hazlewoods prides itself on providing a highly personal service, strong values and new ideas.
Its experts provide specialist accountancy, tax, audit and business advice to individuals and businesses of all shapes and sizes. With more than 380 staff and a wide range of clients locally, nationally and internationally.
One of the best ways to motivate, engage and incentivise employees is through the use of share incentives. Giving an employee a stake in the business helps to instil loyalty for existing staff and encourages them to actively pursue the success and growth of the business. Share schemes can also an attractive proposition to potential candidates, when offered as part of their remuneration package.
There are many different types of employee share schemes and the right one will be dependent on the specific needs and circumstances of the business. One of the most common HMRC approved schemes for small and medium sized companies is Enterprise Management Incentives (EMI). EMI’s offer significant tax incentives, including generally only being taxed on disposal of the shares and at the lower capital gains tax rates, compared to income tax.
Company cars are treated as a taxable benefit and, with increasing benefit charges, until quite recently, they have been an expensive benefit to have. Since April 2020, however, the applicable rates have reduced significantly for green cars making them a more attractive proposition.
Pure electric cars are currently only taxed on the employee at a rate of one per cent of the list price of the vehicle (and two per cent from next year). For example, a new electric car costing £35,000 would have a taxable benefit of £350 for 2021/22 which would equate to an annual tax charge of £140 for a higher rate taxpayer. In some cases, the full expense of the car can also be claimed by the employer in the year of purchase.
Hybrid vehicles currently offer relatively low benefit rates as well, whilst company vans can also be a popular and tax efficient choice for many employers. Unlike with cars, vans are not treated as a taxable benefit where there is some ‘incidental’ private use, including commuting to work.
When purchasing a van some care must be taken, however, as what may look like a van, may actually be treated as a car for tax purposes by HMRC!
If you are looking for something more affordable, provision of a mobile phone could be a welcome benefit as well as practical with the shift towards more agile working. An employer can provide an employee with one mobile phone without any tax implications.
A tax exemption applies covering the cost of one phone, monthly line rental costs and any additional costs for private calls. There is no restriction on the amount of private use by the employee.
The contract must be taken out in the employer’s name for the exemption to apply. If the employee has taken out the contract and you either pay the supplier or reimburse the employee’s costs, then there will be tax implications and reporting requirements.
Pension contributions are a tax efficient way of saving for the future. They are deductible tax expenses for the employer and no income tax or national insurance liabilities arise on the payments by the employee. Furthermore, 25 per cent of the accumulated pension pot can usually be drawn tax free on retirement.
Offering to make employer contributions above the minimum three per cent requirement can be another attractive element of the overall remuneration package.
In order to attract the right candidate for the role, you may need to go a bit further afield than originally envisaged. To help encourage the leap, an employer can offer to contribute up to £8,000 (including VAT) towards qualifying relocation costs, tax free.
There are certain conditions to satisfy, including time limits for the expenditure, but broadly the exemption applies where the employee has moved house to start a new job, as their previous home was not within a reasonable travelling distance.
The employer can pay for, or reimburse, certain costs incurred by the employee including legal costs, stamp duty land tax, transportation and/or temporary storage costs, temporary accommodation costs and travel and subsistence costs for the employee and their family members.
The exemption does not cover costs such as a round sum paid by the employer as a general contribution to relocating, mail forwarding costs, council tax bills, school fee penalties or the cost of new school uniforms.
Following the COVID-19 pandemic, times are tight for many. Whether on reduced pay due to furlough over the last 19 months, agreed interim pay cuts, a stop on overtime and/or periods of unemployment, average wages are likely to be down for many individuals.
As a short to medium term assistance measure, employers could consider offering employees a loan to help them get back on their feet. An interest free loan of up to £10,000 can be advanced to an employee without any tax implications.
Long service awards
For long standing employees, it is possible to reward their ongoing loyalty and provide them with a tax-free gift. The employee must have been with the business for at least 20 years and can be provided with a non-cash award worth up to £50 for each year of service.
For example, an employee reaching their 25-year work anniversary could receive a gift with a value of up to £1,250. The only catch is that an award cannot be provided every year after reaching the 20-year milestone; there must be a gap of at least 10 years between each gift.
The above list is by no means exhaustive! There are several other tax-free benefits that could be offered to your employees including training costs, the provision of parking at or near the workplace, Christmas or other annual parties and professional subscriptions. There are also certain costs that an employer can cover relating to additional household costs, with the recent shift towards working from home.
If you want to put more of a focus on performance, there are also some tax-free cash incentives that can be offered for employee suggestions. Encouragement awards of up to £25 and financial benefit awards of up to £5,000 can be made subject to certain prescribed conditions being satisfied.
Lastly a topic, in itself, is salary sacrifice which is where an employee gives up the contractual right to part of their salary in exchange for a non-cash benefit. The rules have tightened in this area in recent years such that the tax advantages have diminished for many benefits.
Use of a salary sacrifice scheme can still be tax advantageous, however, in particular for pension contributions, childcare vouchers and ultra-low emission cars.
If you are looking to revamp the remuneration package offered to your employees, we would recommend that professional advice is sought beforehand to confirm the tax implications of the various benefits offered for both the employer and the employee.