At "I Hate Numbers," we emphasize the critical role of tax planning for business owners and employers alike. Managing taxes efficiently isn't just a legal obligation—it's a strategic imperative. Today, we delve into a powerful yet often overlooked strategy: benefits in kind.

What are Benefits in Kind?

Benefits in kind are non-cash perks provided to employees, such as company cars, medical insurance, and even housing. These perks hold a monetary value but aren't part of the standard salary package. The appeal? They offer tax advantages, particularly by sidestepping Employee's National Insurance, making them a valuable tool for both companies and employees.

Merits of Adopting Benefits in Kind

Tax Efficiency: By offering benefits in kind like gym memberships or health insurance, companies can achieve significant tax savings. For instance, funding personal expenses through benefits in kind can be more tax-efficient than taking equivalent cash from the company.

Cost Efficiency: Negotiating bulk discounts for corporate benefits, proves cheaper for companies compared to individuals. This approach not only saves costs but also enhances employee satisfaction.

Employee Satisfaction and Retention: Beyond monetary compensation, benefits in kind play a pivotal role in enhancing employee satisfaction and retention. Offering perks like flexible working arrangements or professional development can differentiate your company in a competitive job market.

Comparison with Salary and Dividends

While the traditional route of salary and dividends is common for private companies, it has limitations. Dividends depend on company profits and lack tax-deductible benefits, unlike benefits in kind. This makes benefits in kind a more flexible and imaginative option for remuneration.

Tax-Free Benefits Examples

Certain benefits, such as mobile phones and work-based parking, can be provided tax-free to employees. These exemptions benefit both employers and employees, enhancing overall compensation packages without incurring additional tax burdens.

Conclusion

In conclusion, incorporating benefits in kind into your tax planning strategy can lead to substantial benefits for your business and employees alike. To learn more about maximizing your tax efficiency and enhancing employee satisfaction through benefits in kind, tune in to the "I Hate Numbers" podcast. Join our community and start planning your taxes smarter today!

Managing your taxes efficiently and effectively is an obligation that all business owners should be taking on. If you're an employer, but not necessarily a business owner, that obligation also is on your shoulders to make sure that you pay the requisite amount of tax, not indulge in tax evasion, and one overlooked strategy

for extracting money out of a company for the business owners, and also to benefit your staff and employees, is the use of benefits in kind. In this week's I Hate Numbers podcast, I'm going to be looking at what benefits in kind actually are, the merits of adopting such a strategy, comparing and contrasting that to the use of, for private companies, salaries and dividends,

and the benefits that you have by adopting an effective benefits-in-kind strategy. In next week's podcast, I'll throw some numbers around to reinforce. This week is all about setting the framework - all part of the Plan it. Do it. Profit. philosophy from Numbers Knowhow and I Hate Numbers. Let's crack on with the podcast.

Now, over the last three decades, with my business finance coach hat on and being a UK tax advisor, I'm often working with my clients to find the most efficient ways they can manage their finances and extract money from their companies. When I work with social enterprises, charities, organisations, they are still employers, and they want to make sure they can do something that rewards their employees, recognises

the benefit their employees bring to their companies, but actually have the most tax-efficient way they can remunerate them without actually having too tight a squeeze on their bank balances. Now, this contributes to employee satisfaction and retention. And what's not to love about that? I will mention some examples of tax-free benefits, but again, the goodies will all come for next week's podcast episode.

So stay tuned, folks, and check out the show notes at the end. Now, effectively, benefits in kind are perks or advantages provided to employees that do not form part of their normal salary, normal wage package, but they have a monetary value. The rationale, by the way, for the explosion and the growth in benefits in kind is because benefits in kind do not normally attract employees national insurance.

What that means is potentially those benefits, when provided, if you compare it to the alternative for the individual to fund those particular benefits, can be very beneficial not just for the company but also the individual as well. Now, these benefits range from company cars, medical insurance, provision of a company house.

If you're in that situation where perhaps your company has got a plane and it allows you to use that plane for private use, that can also be thrown into the mix as well. Loans that are provided at either no interest rate at all or at a very notional interest rate are also benefits in kind. Anything that confers a personal benefit to an individual provided by their employer, will be generally speaking within a benefit-in-kind regime.

Now remember, the relevance for small businesses out there, owner directors, owner-employees of private companies who may build up those companies, want to reward themselves accordingly, then this also has an extra bit of juice added into it. When you structure it correctly, do things correctly in the beginning, benefits in kind are a powerful tool both for yourself and your employees. The various merits are as follows, no particular order of merit, but tax efficiency is given as one of the main advantages of benefit in kind. It's got potential for significant tax savings, and I wanted to introduce the idea that if you wanted to, for example, go to the gym indulging gym membership, think if you're the individual employee, and that applies if you are a small private company, you're the registered employee of your business, for you to fund that out of your personal money.

Consider how much do you need to earn, how much you need to draw out the company that, after tax, gives you the money to pay for that subscription. That's the way that you should be considering these. So typically, somebody who's on a wage, by the time you take tax and national insurance into account, 70 pounds in their pocket could crudely speaking be the equivalent

of about 100 pounds plus in gross terms for the employer, plus the appropriate national insurance for employers on top. And in that situation, it makes sense to certainly explore it more. Now I'll talk about some examples of tax-free benefits towards the end. The second thing is in terms of cost efficiency. Now, companies providing benefits to a wide workforce, it can be cheaper for them when negotiating with suppliers to get bulk membership, providing a health insurance, for example, to a group of employees or memberships

can be really beneficial and it's cheaper for the company to engage in that transaction than it would be for the individual employee. Those corporate rates, those corporate discounts can usually be accessed by companies, not necessarily by individuals. And that's a win-win situation. Now, things like gym membership, spa membership, much as we'd love them to be, you know, allowable expenses normally, they aren't normally because of the myriad of tax rules that go about them, but you can still enjoy that benefit.

The company can benefit, the company gets a tax-deductible allowance, and the employee gets to enjoy that particular benefit. The third area to look at is about employee satisfaction and retention. There have been many studies showing that money in itself does not necessarily motivate employees. Money is important, nobody's dismissing that factor, but it's other elements as well that go into the pay packet, that go into the remuneration structure, that can also be very attractive.

Offering attractive benefits, whether it's medical insurance, parking, provisions of phones, or spa days, gym membership, and all the rest of it, can be a key differentiator in terms of attracting and keeping on to good talent. As an aside, folks, on average, it's three times more expensive to recruit an employee than it is to retain your existing staff. Employees do value benefits.

They enhance the impact on the quality of their life and provide real value beyond what they get paid on a weekly or monthly basis into their bank account through their salary. By giving a range of benefits in kind, your business can offer and create a more interactive employment package without necessarily having to think too much about employers national insurance too much and about other taxes as well. Flexible working arrangements, professional development opportunities, and other non-cash perks can be added to the mix to make the job offer more appealing.

One thing I'd like to do at this stage is to gear towards private companies. Those are private companies i.e. structured by shares, where the typical route for most individual directors, employees, owners of the company is to extract the money for a salary, and dividends route is the default recommendation for a lot of accountants to offer their clients to say, take the money out through salary and dividends.

Now, there's nothing wrong inherently without strategy, typically, a notional salary would be recommended such that you still get credits for your national insurance. As an employee, you minimise the burden of employer's national insurance, and as a working number, that figure is around about nine thousand one hundred pounds. Anything over that at current rates can be subject to your employer's national insurance.

So again, this is not a detail what are the numbers these things change, but that's the typical route, and then the rest of it is taken out by way of dividends. Now nothing wrong with that as a very simple approach here. The problem is two-fold: first of all, dividends, which are distributions of profits, are only allowable if you've got what's called positive reserves in your company

i.e. if you've made profits over a period of time and you've got reserves that have built up, that's tick number one. And secondly, obviously, you've got to have the cash. Now, dividends are not business expenses. So therefore, the company effectively doesn't get any corporation tax deduction for them. If you're listening from outside of the UK, typically whether you're an LLC or a similar type of organisation, then the rules for salary dividends

tend to be quite similar in your tax jurisdiction as well. So dividends, in the hands of the individual, form part of their personal income. We do have a dividend allowance in the UK of a thousand pounds, quite mean if you ask me, but there it is. And effectively, the rate of tax will be in the region of about 9 percent at the lower rate.

If you become a higher rate taxpayer or additional tax rate payer, that rate can go up to as much as an eye-watering just under 40%. And that's a quite a large amount of money. Take into account there's no corporation tax break. Take into account that you could be potentially paying dividend tax of nearly 40%.

Then that is quite a lot of tax to pay on that income. If you take that money out of salary, the salary, typically will be subject to tax at 20%. And again, a lot depends on your own particular situation, but you've got tax on both sides. Salary is a tax-deductible. So the company does save corporation tax as a result.

Now the third thing to factor in is the benefits in kind. And again, the traditional route salary and dividends, nothing wrong with that as a default approach, but for me, it's quite limiting. It's not very imaginative, and there's money being left on the table there. The biggest advantages, as I said, or certainly one of them for a benefits in kind, is the employee is not subject to employee's natural insurance. The benefit in kind in the main tends to be a tax-deductible for the company.

So you've got corporation tax savings as well. And the overall equivalent national insurance for employers on a benefit in kind, if it is subject to that, will be much lower than the equivalent salary would need to be. Now, just to give you a taster, there are certain benefits you can provide tax-free to your employees, so have these on me.

Obviously, don't literally mean have these on me, I can't provide them, but in terms of the comments, so things like mobile phones, if the contract is in the name of the company provided to an individual employee, will be tax-free. Even though you make personal calls from that, that is exempted. Work-based parking also qualifies for a tax deduction,

it's a zero-benefit in kind. Childcare nurseries, vouchers, are also another example. In next week's podcast, I'm going to be exploring that in more detail and chucking a few numbers in your direction. Now, folks, if you liked what you've heard, and I hope you have, let me know what your thoughts are. Do you provide any benefits package in your company,

in your small business? Are you an employee or an employer who is thinking about this? If so, I'd like to hear your thoughts. Share it with those who you feel will benefit. And I'd like you to check out the show notes to have a gander at the Numbers Knowhow community, based for small businesses, artists, creators, and coaches, to give them that financial support

that follows that philosophy of Plan it. Do it. Profit. Until next week, folks, happy benefiting. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.