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One major attraction of flexible benefit platforms for employers and employees alike is the tax and national insurance (NI) savings they get through various flexible benefit schemes. These savings allow employers to reduce expenses and divert to other beneficial purposes. While for employees, they get to enjoy benefits at a reduced cost at the same time enabling them to save up. However, employers need to know that there are different tax treatments for every scheme and that they should explain all this to their employees. By means of effective communication, employees can make sound judgments and wise decisions. Tax benefits are usually found in salary sacrifice schemes. This is because when employees agree to reduce their pay in exchange for non-cash benefits, the taxable income becomes smaller and the tax and national insurance being paid is thus also lowered. One form of salary sacrifice that maximizes tax benefits is the pension scheme. When an employer makes a contribution to the pension fund, it lessens the company’s profits thereby reducing the company’s taxable income. Likewise, an employee’s contribution to the scheme is also deducted from their taxable income. Furthermore, the income amount coming from investments made through these pension schemes are also non-taxable while members who decide to make a personal contribution, can get a tax relief for as much as 20%, 40% or 45%. Upon retirement, 25% of the member’s pension fund can be taken out as tax free cash sum. The healthcare scheme that will take effect later on in 2014 will provide tax exemptions for employers who will pay medical treatment for employees who are on long-term sick leave. This scheme aims to help employees return to work after a long time of absence. In terms of health screening, employees can save as much as 42% on tax and other expenses since the price for company bulk screening is lower as compared to individual packages. Employers, on the other hand, get to save as much as 13.8% on NI contributions and recover the cost of screening from the employee’s wage. Similar with the healthcare scheme, companies providing cycle for work scheme can save up to 13.8% on employer NI contribution. While employees can save up to 35% on taxable income since the payment for the bike is deducted on the gross pay and not on the net pay. Since tax treatment is different for every scheme, it is important that employers get to simplify and discuss in detail with their employees the entire concept of the flexible scheme. Employers and employees alike should familiarize themselves on all the legal aspects so that they can get the full tax benefit of their chosen flexible benefit platform.
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