Salary or salad? You can feast on tax breaks with canteen credits
You might scoff but the Eat at Work scheme is just one of the valuable benefits that some employers offer on their remuneration menus
Sunday 15 April 2007
Fancy a tax-free taco for lunch? Or how about fish and chips without the national insurance contributions (NICs)?
The staff canteen, not usually the home of personal finance planning, is an increasingly popular choice for companies wishing to provide perks to foster staff loyalty.
The Swiss food giant Nestlé will next month become the latest to offer a government-backed tax break to its UK employees. The Eat at Work scheme, based on the principle of "salary sacrifice", allows staff to give up a small chunk of their untaxed salary each month in exchange for a food and drink "credit" to be used in the canteen. In effect, this saves them paying some tax and NICs.
Here's how it works. Say you spend £5 a day in the canteen; instead of paying roughly £100 a month from your taxed salary, you swap this sum from your gross pay for a pre-paid credit that you can then use in the workplace.
This represents an annual tax saving of £387 for those paying basic-rate tax, or £481 for higher-rate earners. The employer also saves on the NIC contributions it would otherwise have had to pay on that part of your salary.
Under the 2003 Income Tax (Earnings and Pensions) Act, free or subsidised meals can be exempt from tax if provided for all employees. While many will dismiss such perks and argue that employers should simply pay higher salaries, it's still a good idea to check out the full range of benefits that your company has to offer.
Aside from the company pension - which, as a rule, nearly all employees should take advantage of to benefit from the tax breaks and any employer contributions - the most popular office-related benefit is "flexible" working. Nearly half of all UK companies now offer the choice of flexi-time or homeworking for at least part of the week. The former arrangement lets you come and go as you please provided you put in a minimum number of hours each month. An alternative is to compress your con- tractual hours, say by working the same time over four days rather than five.
Another popular choice is job-sharing, where two people divide up the hours and responsibilities of one job and receive the same pro rata salary. Watch out, though: this can affect your state pension entitlement as well as your private pension provision since you'll be paying less in NICs.
Save as you earn
As far as job perks go, setting aside a chunk of your monthly salary to buy shares in the firm you work for probably doesn't sound like the most enticing offer on the table. But "share-save" schemes carry tax breaks and let you buy into the stock market - usually at a 20 per cent discount, to take advantage of anticipated future price increases.
Major companies that offer such schemes include the supermarket giants Tesco and J Sainsbury and Royal Mail. There are three share-save schemes available but the most popular is save as you earn (SAYE).
Staff first decide how long they want to save money for - usually three or five years - and how much is to be deducted from their salary each month, ranging from £5 to a maximum of £250. A "start" date is then noted, from which the clock will be ticking on your company's share price.
For example, say you had started paying into an SAYE plan in April 2004, when the share price was £5, and after three years, the price is now nudging £7. This means that, with a 20 per cent discount per share on the 2004 price, you can use the cash you have saved to buy shares worth £7 at the very attractive price of £4. At this point, you can sell the shares straight away at a profit or, if you're confident they'll rise further in value, keep them.
You'll have to pay capital gains tax if you sell but, unless you've made a profit of more than £9,200, your annual allowance will cover this.
Don't forget, though, that SAYE carries a risk. That discount on the price at the time you bought your shares will be of value only if they have risen in the meantime. If your company has had a rough time from investors and the markets, an option to purchase shares at a higher price than they are currently being traded will not seem like much of an offer. However, in this case, SAYE does have a safety net of sorts: should the share price tumble, you can take away the money you've saved tax-free with a cash bonus on top.
Details of any share plan should be provided when you join a new company. Even so, it's easy to overlook benefits like this. Ask your personnel department for information.
There are some 6,000 share-save schemes in the UK but, on average, only half of the staff eligible to join do so, according to ifsProShare, a not-for-profit organisation that encourages share ownership.
For many people, the most important work-related benefit will be one that helps with the cost of looking after their kids. Through NIC exemption and income tax relief, a voucher scheme allows employers to contribute to their employees' childcare costs.
In a nutshell, these costs are deducted from your monthly salary and turned into vouchers that you use to pay a registered nursery or childminder. The vouchers can be used only for government-registered, approved nurseries and childcare providers, meaning that those who have informal arrangements with friends and family members miss out.
Worse, the lower NICs paid by those receiving childcare vouchers could jeopardise their future entitlement to work-related benefits such as sick pay and also occupational pensions - depending, of course, on how much employees pay into these.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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