In Autumn 2016, the UK Government announced that, after a consultation, they were vastly reducing the ability for benefits to be tax and/or NI efficient (both employer & employee) which in effect would recoup over £1bn in lost tax income during the current Parliament.
In essence, this means they will stop employer savings for all salary sacrifice benefits except pensions, C2W, CCV and cars with emissions of less than 75g CO2/km (also known as Ultra Low Emission Vehicles (ULEV)).
For the salary sacrifice benefits that have not been included in the exemption list, employees would still be able to save on their NI, but they would be subject to Benefit in Kind charges.
Also read What is a tax efficient benefit?
What this means for technology benefits
Technology benefit providers can no longer feasibly claim that employees can make financial savings of 30-40% on their technology purchase. Now, the maximum saving an employee can make at the outset is 12% or 2% (depending on tax rate). This saving then reduces further if the benefit requires:
- Employers to purchase the product on behalf of the employee and lease it to the employee for a set period time (normally 12-36 months)
- The employee to pay for the discounted cost of the product spread across the set period of time
- At the end of the period, the employee either has to give the product back or take ownership
- If they do take ownership, to pay an additional charge what is known as a Benefit in Kind (BIK), essentially they will have to pay the tax on the taxable amount of the product (see our example below).
From a company perspective, the changes also mean that employers will no longer be able to save on their NI contributions of 13.8%, meaning there will be no financial advantage of running these programmes.
We also believe that in the future, the government will look at these benefits again, and most likely remove the employee NI savings (there was some surprise amongst experts that they did not do this the first time around).
Our view is that employers will move away from providing the more time-consuming and manual benefits, which some tax-efficient schemes can be, because the savings do not always outweigh the costs involved in simply administering the program.
This is the case for a typical tech discount benefit, which we've illustrated below:
An employer purchases an iPad through their tech discount provider for £400. The employer lends/leases the iPad to an employee for 12 months as long as the employee pays for the cost of the product over this period.
The employee agrees for it to come out of their salary; the employee can save 12% on their NI by using this benefit. So, instead of paying £400 for the iPad, they pay £352 (which is £400 - 12%). This equates to £29.42 being deducted from their salary each month.
After 12 months, the employee either hands back the iPad or takes ownership. If the employee takes ownership, they have to pay a Benefit in Kind charge which is the tax on the taxable value of the equipment.
The tax on the product would be 20%, so that would be £80 (£400 x 20%). The employee would have to then pay the tax on this, which would be £16 in this example (£80 x 20%).
So, whilst at the start of the journey the employee appears to only pay £352 over 12 months for a £400 product, at the end they would have to pay another £16 if they kept the iPad. So in effect, they would be spending £368 which would equate only a 8% saving in the end.
To add further complexity, the £16 would be collected from the P11D which would normally come after the deduction period. This may confuse the employee, as they’ve finished paying the iPad but then they have to pay again!
So, what starts off sounding like a great idea, quickly spirals into complexity and negativity for not only the employer (due to additional admin) but for the employee as well.
The SmartTech™ difference
On the advice of our solicitors and tax advisors, we decided to avoid going down the tax efficient route and decided to offer SmartTech™ as a net only benefit. This means that it is simple to offer a great new technology benefit. No P11D’s, no lease arrangements, no hassle - just happy employees.
Although it means there won’t be any tax savings, we feel the added benefits of simplicity and clarity far outweigh the minimal savings that could be made on tax. Additionally, by having it as a net benefit we’ve been able to team up with Currys PC World to offer a truly unique and market-changing payroll benefit.
How it works
Offering SmartTech™ as a net salary deduction benefit means that the employer simply loans the employee the money needed to cover the cost of their tech purchase, which is then wholly owned by the employee (this means no risk of being lumped with an out-of-date laptop after a year).
The government allows the employer to loan the employee up to £10,000 per year in interest-free loans, and in a similar way as the season ticket loan service that is provided by some employers, we offer the same thing but replacing travel with technology.
With this option, although there are no tax savings, it's simple to understand, simple to administer and provides both the employer and employee greater transparency over who is responsible for what.