Staff Incentives – What are the tax implications?

Attracting and retaining top talent is harder than ever, especially with a new generation of head strong individuals who are not afraid to job hop and seek the work/life balance they desire.

The complexities of what companies are offering by way of remuneration packages now goes way beyond monetary rewards. For example flexible working hours, pension, child care vouchers, car allowance, company car, mobile phone, travel cost loan, gym membership, after work drinks, incentive trips away, gift vouchers, beer fridge, training, unlimited holiday, charity days/volunteer projects, discounts with local suppliers, office food like fruit or pizzas, shares in the business – the list is endless. It’s great to be innovative to keep your top talent incentivised however don’t ignore the tax implications of these benefits. Some may cost you more than you anticipate, especially if you are not compliant with HMRC legislation.

Depending on the type of benefit available and whether the cost can be directly attributable to an employee depends on the tax consequences and HMRC compliance. Also consideration needs to be made on whether the employee suffers the tax or the company. In some cases, such as a sales incentive trip to Ibiza, it would be bonkers for the employees to suffer the tax consequences. They would be reluctant to hit those sales targets and it would completely defeat the objective of having an incentive trip abroad.

A PAYE Settlement Agreement is one option whereby the employer agrees to settle the taxes on behalf of the employee. It is obtained by way of a written request to HMRC and reporting is dealt with after the end of the tax year, submission by 5 July. Many recruitment companies have these agreements in place as staff entertaining is a significant cost in a sales driven environment.

If you would like to know more about the tax consequences of the most popular incentive packages then please click the button below to access the full article.