Running a business:
Remunerating employees

Most businesses will need to recruit employees. Finding and attracting the right people can be problematic. It can be even more difficult to retain those staff who are key to building your business or taking it on to that next stage. Working conditions and environment, and relationships with other staff are all important to keeping employees happy. Ultimately though you will need to offer your staff the �right� remuneration package that you can afford and which is sufficient for you to retain your key people.

We consider below the provision of:

'Fringe' benefits
Company cars
Company vans
Life and health insurance
Pensions

Fringe benefits
In order to give that little extra to your staff, you should consider offering �fringe� benefits. There really is no limit to the range of benefits you can provide, subject to your own imagination. Specialist suppliers can help provide the benefits, and help with your imagination!

Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. However, although the business will pay class 1A NIC on most benefits to employees, the employee may not have an NIC cost and so benefits can be more efficient than cash.

Benefits are most valuable to �lower paid� employees (earning at a rate of �8,500 per annum or less including the cost to you of benefits in kind), who pay no tax or NIC on most benefits that are not convertible into cash. The employer does not pay NIC on these benefits either.

Some benefits are not liable to tax or NIC at all. In the right circumstances you could include these in a package to your employees, so no tax for your staff and no NIC for you.

The more popular tax efficient benefits include:

Interest free loans of less than �5,000;
Car parking facilities at or near the place of work;
Child care facilities on your premises or, from 6 April 2005, the provision of vouchers worth up to �50 per week for child care;
Personal use of a mobile telephone owned by the employer;
Loan of computer equipment worth up to �2,500.

There are several subtleties to consider if you want to take advantage of tax-advantageous remuneration, and we recommend that you talk to us before deciding on the benefit package.

Company cars
Company cars are now highly taxed, and gone are the days where genuine work cars were taxed more favourably than �perk� cars. The key now is C02 emissions � the �dirtier� the car the more the tax. There are no hard and fast rules on whether a company car is worthwhile, it depends on so many factors beyond the cost of a car. You need to consider business and private mileage, running costs and estimated residual value as well as the tax rules.

The provision of fuel for private use is also highly taxed. Provided your employees are prepared to complete contemporaneous mileage records to evidence business journeys it may be more cost effective for employees to run their own cars and claim tax free mileage, at rates of up to 40p for the first 10,000 miles and 25p thereafter.

In some cases the company car rules throw up some surprising results. So long as the car has a very low C02 emission rate the tax bill can be lower than you might expect, and it may be worth while considering acquiring such a �perk� car, for example as a little �run about� for your spouse, or your children, through your company.

At the other extreme, the car benefit rules are capped at a vehicle list price of �80,000. If you fancy running a Bentley the tax is based on a �80,000 car not the actual cost or list price. Be assured the tax is expensive but everything is relative!

Company vans
Up to 5 April 2007, the benefit of making a company van available to employees for private use is �500 (or �350 for a van that is 4 or more years old at the end of the tax year). The charge also includes any private fuel provided. This is considerably less than the benefit of a company car, and certain motor manufactures capitalised on this by making vehicles that were classed, for tax purposes, as vans but were as comfortable as cars.

From 6 April 2007 the scale charge will increase to �3,000, with no reduction for the age of the car. There will be an additional charge of �500 if private fuel is provided.

We recommend that any businesses providing 'perk' vans to employees should review their policy in view of the increased cost of the benefit to the employee.

Related literature:

How much tax should I be paying on my company van?

Life and health insurance
Many employees like the security of health insurance cover, and it can also help the business if its employees to get early medical attention. Cover can be arranged for individuals, but group cover is often cheaper and easier to implement, for example employees can obtain cover without having a medical examination.

Life insurance is often linked to pension arrangements and arranged for groups of employees. Usually, the lump sum insured for each employee is a multiple of their wage or annual salary; subject to a maximum of four times annual salary.

It is also possible to offer other insurance products, critical illness or income protection cover.

Pensions
As part of an overall package, pension contributions on behalf of your employees are tax and NIC efficient.

Pension provision is one major employee benefit encouraged by the Government. If you have 5 or more employees you are already obliged to facilitate a stakeholder friendly pension to enable your employees to contribute to a pension scheme (even if you make no contributions yourself).

Related literature: