Employers save the Employer's NI contribution that would normally be paid on that portion of salary . This is currently set at 13.8% of any benefit amount, up to the maximum allowed
Assuming that your employee's take the maximum allowance for their tax rate, the savings would amount to
- £402.41 per annum for all 20% tax payers, and 40% and 45% tax payers joined before 06/04/2011
- £205.34 per annum for all 40% tax payers joining on or after 06/04/2011
- £182.16 per annum for all 45% tax payers joining on or after 06/04/2011
If the company has just 10 employees on 20% tax that take up the scheme the company could save over £4000, which more than compensates for the cost of the scheme in service charges and internal admin
Note - At the start of every tax year the employer needs to carry out a 'basic earnings assessment' for all employees on the scheme, and any new scheme joiners have to be assessed during that tax year. They are allowed to use P35 information as well as contracts of employment to calculate the tax rate they think their employees will be on. This will then determine the maximum Tax and NI free allowance
For new 20% tax payers joining on or after 06/04/2011 and employees already in a scheme before 06/04/2011, the savings are as follows
- new 20% tax payers save £77.76 per month, or £933 per annum
- existing 40% tax payers save £102.06 per month, or £1225 per annum
- existing 45% tax payers save £114.21per month, or £1370 per annum
For employees joining on and after 06/04/2011 the savings have now changed for higher rate tax payers
- 40/45% tax payers save £51 per month, or £623 per annum (Maximum Tax and NI free allowance of £28/25 per week, £112/100 per 4 weekly and £124/110 for monthly paid).
Note - from 06/04/2011 any employees that were in a scheme before 06/04/2011 that subsequently failed to take the benefit for a continuous 12 month period will fall into the new tax allowances and will need to have a 'basic earnings assessment' carried out by the employer. For instance, a 40% tax payer would lose savings of £623 per annum - you can see the effect of having childcare vouchers on Tax Credits by following this link to the HMRC site - Tax Credits calculator.
Or better still, just call our team now and we'll talk you through it.
Tel: 0800 088 7315