Paying for services and benefits directly from your salary can help make your money go further. Here are some of the employee benefits you could take advantage of.
Many employers offer their staff a selection of salary sacrifice benefits. These are designed not only to reduce the company's tax and National Insurance liability, but also to help make their employees' salaries go that bit further.
These perks are referred to as 'benefits in kind' and many are available tax-free.
Some of the most well known of these so called 'fringe benefits' include occupational pensions and company cars, but you may be able to enrol for a host of other benefits ranging from childcare vouchers to gym memberships to save money too.
Here are some of the benefits you could take advantage of:
A pension boost
Paying into a company pension is not only a good way to boost your retirement income, it also comes with a host of tax benefits that means your money goes further.
This is because pension contributions are eligible for tax relief. So if a basic rate tax payer contributes £80 to their pension, they actually receive £100; for a higher rate tax payer this figure is £120!
As you’ll usually pay into your company pension via salary sacrifice you receive this extra benefit automatically. This is because the money is deducted from your pay packet and paid directly into your pension before income tax is applied - this means your pension contribution isn't touched by the tax man.
Add to this the fact that many employers promise to match your contributions up to a certain level (this will be near compulsory once the NEST scheme is launched) and you could effectively give yourself an immediate pay rise simply by paying into a pension fund.
To find out more information on paying into a pension, read our guide: Should I Get a Pension? or try following our Action Plan: How to get a Pension.
Help with the cost of childcare
Childcare can be extremely expensive, however there is a scheme that enables parents to cut costs and make their pay go that little bit further.
Childcare vouchers give parents a way to pay for childcare from their pre-tax and National Insurance income.
The vouchers are bought via salary sacrifice, so the money isn't taxed and stretches a lot further, which can equate to some big savings.
There is a limit to the amount of childcare vouchers you can purchase from your salary, but each parent could save up to £920 a year using the scheme (although this will depend on the tax band you occupy).
However, while the childcare vouchers scheme is likely to save the majority of people in work money, if you are in receipt of child tax credits then they could prove to be a false economy. This is because you can only claim child tax credits for childcare costs that you pay for in cash. You wouldn't be able to claim them for any childcare you paid for using the voucher scheme.
If you currently receive child tax credits and are unsure if you would save money using childcare vouchers, you can use this HMRC calculator to find out if they are worth considering.
For more information on the Childcare vouchers scheme, visit the Directgov website or the Childcare Voucher Providers Association website.
For more ideas that could help you cut the cost of childcare take a look at our Action Plan : How to Cut Your Childcare Costs
A new bike
If you like the idea of cycling to work but are put off by the cost of buying a new set of wheels, then you should look at taking advantage of the cycle to work scheme.
This allows you to purchase a new bike via salary sacrifice and spread the cost over a number of months making it much more affordable. What's more, as the money is taken from your pre-tax pay it'll cut the cost of buying a bike considerably.
Together this means that you could, in theory, pay up to 50% less for a new bike and any accessories you need, while also saving money on transport costs and getting fit as well.
For more information read our guide: How CycleScheme Can Save You Money with a Tax-Free Bike for Work.
Cheap phone calls
If your employer is willing to offer a computer or mobile phone for you to use outside of work as part of your employment package you'll be able to avoid paying both income tax and National Insurance on the benefit.
This is because employers are able to provide their employees with a mobile phone for personal use tax free.
You'll pay for the cost of line rental and calls via salary sacrifice, but as you'll not be paying any tax on the total you'll be able to make significant savings.
However the mobile phone must be for your sole use and not the use of any of your family members.
It's worth noting that any money your employer pays to reimburse you for using your own mobile phone will be subject to Income Tax so this is a less attractive option.
Taxable salary sacrifice options
Although not all salary sacrifice schemes are tax free, you could still make significant savings by taking advantage of the discounts they offer.
One of the main advantages of sacrificing a part of your salary in exchange for a taxable benefit in kind is that you won’t pay National Insurance on the money you spend. However, the money will still be subject to Income Tax at your standard rate.
Many of the following benefits are offered to employees as part of their employment contract, or are available at a discounted price through salary sacrifice schemes. So consider if you could save money by taking advantage of any of the following benefits:
A company car
A company car could be a perk that not only gives you the chance to upgrade your vehicle every few years but also cuts your transport costs as well.
It's worth asking your employer about this benefit, although company cars are often reserved for senior management or members of staff who travel large distances on business.
While this benefit would be taxable, you wouldn't have to pay National Insurance on the cost. What's more, the taxable value of a company car is often set well below its ‘true value’ so you end up paying less for your set of wheels.
You can calculate the taxable value of your company car and its affect on your tax free allowance online on the HMRC website.
Private medical insurance
While the NHS is one of the great bastions of the British public sector, for many people private health care is coveted benefit that seems just a little outside their price range.
However, many employers now offer private health care as part of their employment contract, so you could benefit from the reassurance that private health care provides without paying hefty membership charges.
Take a look at our Health insurance comparison table to get an idea of the types of policy available.
Private gym membership
Private gym membership can be costly, however you could make it more affordable by signing up to your local gym or health centre through work.
This is because many businesses are able to negotiate a discounted rate for their employees by speaking directly to the gym or health club.
As with other benefits paid directly from your salary, you are also likely to save money on the cost of gym membership by paying less National insurance.
Is there a downside?
While salary sacrifice can be a good way to save money on certain essentials and cut the costs of other benefits, you need to weigh up whether each individual benefit is worth taking.
After all, although you would receive tax and National Insurance relief on the cost of many of the schemes, you will still need to pay for each of the benefits on offer, and as such you need to be happy that they are worth the cost.
This means that if you sign up for each available scheme that you are likely to have less cold hard cash entering your bank account every time you get paid.
Some of the benefits may be included in your employment contract and mean you are automatically enrolled while others may be optional extras which you can control whether you take or not.
If you are struggling to stick to a budget or have expensive borrowing outstanding then you may feel that the money you sacrifice each month could be put to better use elsewhere. This is something you need to consider before approaching your employer or HR department.
