'Salary sacrifice': the gifts the taxman can't unravel

From Christmas parties to telephones and child minding, many company perks are tax-free and could justify trading in some pay, says Annie Shaw

Alistair Darling in a Santa suit is not an image that springs easily to mind. But you can still make the most of the festive season by extracting some tax-free presents from the Chancellor.

Most gifts or services paid for by an employer on behalf of an employee are classed as "benefits in kind" and are subject to tax and national insurance, in the same way that the cash value of the gift would be treated.

But you can gain from tax-free perks, among these certain benefits provided by your firm because they are exempt or below a certain threshold.

Then there is "salary sacrifice", where you take benefits in lieu of pay, saving tax and national insurance. However, if you work short hours, or are low paid, you must be sure that trading in earnings in this way would not bring you below the level of the minimum wage.

Salary sacrifice could also have an impact on the level of your pension entitlement and redundancy pay, and you will need to check how it affects any other benefits such as maternity pay.

If your company is full of the Christmas spirit, you might be able to persuade it to provide some seas-onal presents as well. For example, employees are not taxed on the provision of a Christmas party or any number of events, in fact provided it is open to staff generally and the total cost per head is not more than £150 including VAT. The tax-free allowance is granted for each person attending the event, so it can be extended to partners and family members.

Your employer can also provide you with a telephone for either business or private use, with no tax to pay on the phone itself or the cost of the calls. You simply agree to give up a portion of your salary in return for the equipment, which will cost you far less than taking out a phone contract yourself. It could save you between £140 and £180 a year, while your boss pockets around £50.

Many children dream about getting a new bicycle for Christmas, and now the grown-ups can have one too because companies can give their staff a bike or cycling safety equipment for travel to and from work. The perk must be offered to all employees and principally be used for home-to-work travel.

The employer either purchases or leases the bikes from a supplier and then loans them to its workers. The employee pays the company an agreed "rental" sum by means of salary sacrifice.

At the end of the loan period, the company can offer to sell the bicycle to the staff member for a "fair market price", bearing in mind that the bike is now second hand and the value will probably be low if not negligible.

The employee now owns the bicycle, having saved as much as 50 per cent of the price that he would have paid had he bought it in a shop.

Free parking for bicycles and motorbikes is also exempt from tax, and you can claim a 20p tax-free mileage allowance if you travel by bike on company business, or 24p by motorbike.

How about giving your kids music lessons or football coaching for Christmas? If you have a child under 16, and they are looked after by a registered child minder, then your company can pay that person 55 per week towards childcare, subject to salary sacrifice.

So if your child is learning the clarinet or plays rugby or football after school, and their teacher or coach is a registered child minder, your employer can pay up to £55 a week for the lessons and get tax relief on the payments.

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