As of March 2020, Reward Gateway's employee technology benefit SmartTech™ can be run as either:
- A net salary deduction benefit (i.e. employers loan employees money to make technology and whitegoods purchases, and the employee repays the loan via net salary deductions); or
- A salary sacrifice benefit (as above, but repayments are taken from the employees' gross salary where the employer and employee can sometimes make NI savings).
Which option is best?
Whether the client should run their SmartTech programme as a net salary deduction benefit, or a salary sacrifice benefit, depends on a variety of factors, and clients should always seek professional tax advice to determine the best option for their organisation.
In some instances, running a technology benefit as a salary sacrifice benefit could be more expensive for both the employer and the employee than running it as a net salary deduction benefit.
Why might the salary sacrifice option be more expensive?
New Optional Remuneration Arrangements (OpRA) were made to salary sacrifice benefits and came into force for any benefits extended after 7 April 2017. There were no changes to the underlying salary sacrifice principle, however there was a substantial change made to how benefits needed to be taxed. The biggest change was that any salary sacrifice agreement entered into after 7 April 2017 had to be taxed at the higher of the standard benefit in kind valuation.
There were only a small number of exceptions to this new arrangement:
- Pension contributions
- Employer-funded pension advice
- Cycle To Work Schemes
- Childcare Vouchers
- Low Emission Cars
Technology benefits were not exempt and needed to follow the new guidance from OpRA.
The result of this change was that technology purchases need to be taxed on the full value of the item (rather than the 20% of the market value used previously) at the end of the repayment period.
The value of the item at the end of the repayment period must be assessed and, unless the second-hand value is nil (which is very unlikely to be the case with electronic items), a tax and National Insurance charge must be applied at this stage.
The consequence of this is that although the employee will still make a National Insurance saving on the item, in many cases the tax amount at the end of the repayment period will be above this initial NI saving, resulting in the item actually being more expensive for the employee.
It is therefore extremely important that any clients who are interested in providing SmartTech™ to their employees as a salary sacrifice benefit must discuss this with their tax advisors before going ahead, to ensure it is the right option for their organisation.