Are you making the most of taxable benefits? This is such an underused tax strategy, yet it is so powerful.
But before we go into taxable benefits,
Salaries and dividends
A salary, unlike dividends, is subject to the employer’s and employee’s National Insurance contributions (NICs). A small amount is normally paid as a salary. The rest is paid out as dividends.
For the 2023-24 tax year, an annual salary of £9,568 or higher is the trigger point for paying NICs. Dividends are advantageous when compared to a salary. However, the salary is essential for earning NICs credits, and also tax relief for the company.
Why not use our Online Payroll Calculator? It’s FREE and also you can quickly see what your take-home pay is for weekly/monthly staff.
Taxable benefits
It can make financial sense for your company to provide benefits in kind, i.e. pay for items that you would pay for personally. The big savings that can be made for each £1,000 of benefits are shown below.
Tax Savings: Salary v Employee Benefits: 2024-25
| Marginal Rate: Basic | Marginal Rate: Higher | Marginal Rate: Additional | |
|---|---|---|---|
| Annual | < £50,270 | £50,270 + | £125,140 + |
| Tax Savings per £1,000 | Tax Savings per £1,000 | Tax Savings per £1,000 | |
| Employee savings | £189 | £418 | £511 |
| Private company savings | £332 | £698 | £820 |
| Not for Profit company savings | £443 | £931 | £1,604 |
Here’s a video with more on that:
Company taxable benefits
You can make significant savings for you and your business if you decide to use taxable benefits. These can be provided tax-free to you, while your business can claim these as business costs.
Taxable benefits examples:
- Mobile phones
- Workplace parking
- Benefits
- Health screening and medical check-ups
There is no tax or NIC to pay on trivial benefits. This means you don’t have to pay tax on a benefit for your employee if:
- It costs you £50 or less to provide.
- It is not:
- cash or a cash voucher
- a reward for their work or performance
- in the terms of their contract
Overall, I urge you to consider using taxable benefits as a tax-efficient strategy. You can reduce costs and also improve employee satisfaction.
To be in control of your business numbers (not just taxable benefits), there’s something else you need to be aware of. Our online apps Budgetwhizz® makes keeping track of your cash flow and financial planning easier. Stay organised so you can focus on what matters to you; the creative work and the impactful change. Take a step away from the chaos with fast setup & easy navigation – numbers just got real…for the better! Get organised & also make sense of it all with Numbers Knowhow® today!