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Tax Efficient Employee Incentive Schemes

You may think that incentive schemes are just for big companies with lots of staff, but as soon as you get another employee (other than your other half!), then you should start thinking about how to reward employees. Why? Because you want them, and ultimately your business to be successful. And happy, motivated staff will help make that happen.

We take a look at the tax efficient employee incentive schemes that could help keep your staff motivated and some of the golden rules you should follow if you want them to be a success.

7 tax efficient employee incentive schemes you need to know about

1. Salary sacrifice

If you’re looking for a cost-effective way to help employees and keep them happy, salary sacrifice is a good option. By giving up some of their pay, employees receive a benefit instead. And if certain criteria are met, some of these benefits have more favourable tax treatment or are completely exempt from National Insurance, which means you win as well.

Common salary sacrifice schemes include:

  • childcare vouchers
  • buying extra annual leave
  • pension payments
  • cycle to work
  • technology (such as iPads)
  • training (MBAs, vocational etc)

2. EMI share scheme

If you want to retain valued employees and reward them for investing their time and skills in helping your company grow, the Enterprise Management Incentive scheme (EMI) is a good choice. It allows you to grant share options to employees in a tax-efficient way and, if framed correctly, allows the shareholders to retain control.

There are certain criteria that both your company and your employees have to meet in order to qualify for the EMI share scheme. We have extensive experience in this area, so are happy to work with you to design a scheme that meets EMI requirements.

3. Growth shares

Growth shares are a way of giving key employees shares in your company. They are a special class of shares and reward participants for the growth in value of the company above a specified threshold. They are a great way of incentivising employees to give their all as they will ultimately benefit, and they also offer potentially significant tax savings for both the company and your employees.

Growth shares are flexible, so can be designed to meet specific objectives. We are more than happy to work with you to put the right scheme in place for your business.

You may also be interested in:

Reducing your Corporation Tax, the legitimate way

5 reasons why you should become your company’s landlord

Limited companies and Corporation Tax breaks: Part 1 – Building a pension pot

4. Profit-sharing schemes

If you don’t want to offer shares in your company, then you might want to consider a profit-sharing scheme. This may not be the most tax-efficient way to reward employees, but it’s amazing how incentivised some people can become when they know they will get a share of the profits!

5. Recreational benefits

You probably already know, you can spend £150 per head per tax year on annual functions for your staff and even give them a Christmas gift, as long as it costs £50 or less. And, if you keep within certain criteria, neither of these is taxable.

But did you know, if you provide sporting or other recreation facilities, these will also be tax-free? Okay, you might not have the room at your office for a workplace gym, but a table tennis table or a football table is a pretty cool way to keep your staff happy.

6. Interest free and low interest loans

Most people think of companies offering interest free loans for buying season tickets, but you can actually offer them for any purpose. You just need to make sure you don’t loan more than £10,000, as it will then be taxable as a benefit in kind and you will need to pay National Insurance contributions.

There are a few pitfalls to offering loans, so if you are interested in this option, give us a call and we can help guide you through the process.

7. Staff suggestion scheme

Did you know that you can award employees for suggestions that benefit your business, and you won’t have to pay any tax or National Insurance? You can pay £25 for any suggestions that improve the way the business is run and if it’s an idea that delivers a financial benefit you can pay 50% of the money saved in the first year or 10% of the money saved over 5 years, as long as it’s not more than £5,000.

The three golden rules for implementing employee incentive schemes

Before you go dashing out to buy a table tennis table or draw up a share option agreement, have a think about the following:

  1. Decide what behaviours you want to incentivise. If you want a new sales person to double your turnover in 3 months, then offering them a share of your profits could be a great incentive. However, if you just want your staff to be happy and think you’re a great boss, then throw them a Christmas party.
  2. Incentives are only incentives if they mean something to the employee. There isn’t any point offering gym memberships to people who hate exercise. Different people respond to different incentives, so our advice is, just ask! And you may discover something that works specific to your business. One of our Tring clients reward staff with extra holiday if they don’t take any cigarette breaks.
  3. And remember you don’t have to offer everyone the same. It’s absolutely fine to offer a profit-sharing scheme just to those employees who will help increase your profits. Just make sure you get it all in writing.

Incentive schemes are a great way to reward employees and help you build a workforce who are in it for the long-term. It’s why over the years, we’ve helped so many clients around Tring, Aylesbury and High Wycombe identify and implement the employee incentive schemes that are most beneficial to them and their business.

So, if you need any help getting started, just give us a call. We would love to help you grow your business.

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