We recognise that civil society needs to be paid for through taxation. But that doesn’t mean that anyone need pay more than they have to. Because income tax thresholds have been frozen for a while – and will continue to be so until 2028 – more are finding themselves paying tax, and at higher rates, than ever before.

The result of this is that giving staff more through their pay packets can end up being self-defeating as they pay more in income tax, national insurance, student loans or may lose state benefits.

As a result, whatever an employer can give that is a tax-efficient benefit will be greatly appreciated.

Taxing benefits

We are familiar with taxation of wages and salaries, but employees aren’t just taxed on the cash they receive. Most things that an employer provides that has a value – including benefits such as health insurance or company cars – need to be assessed for tax. The benefit-in-kind rules which determine how these non-cash benefits are taxed can be complex, but fortunately, as Helen Thornley, ATT technical officer points out, there are a few benefits which can be provided tax-free, provided that employers stick carefully to the rules.

Thornley begins by noting that with many tax-free benefits it is important that the employer purchases the benefit. As she says: “Getting an employee to buy an item and then reimbursing them will not give the same favourable tax outcome. When it comes to paying for a ‘tax-free’ benefit, it will be necessary to get the company credit card out.”

Next, she says that in all but a few specific cases, it is important that the employee is not asked to choose between salary and the benefit. Thornley explains that “when an employer offers an employee a choice between either receiving a benefit or extra salary – or asks the employee to give up salary in exchange for a benefit – then special ‘optional remuneration arrangements’ rules mean the employee will be taxed on whichever gives the highest tax bill, the salary given up or the benefit received. She warns that this can cancel out any of the hoped-for tax savings. Only certain benefits, including pensions, can be provided in exchange for salary without losing the tax benefits.

Pensions

Employers have been required to enrol staff into a workplace pension scheme automatically since 2012. However, by changing how the contributions are made, Thornley says that employers and their employees can make National Insurance (NI) savings.

She details that in general, employer payments into a pension are tax-free and help employees to provide for their retirement; only very highly paid employees need to worry about exceeding the annual allowance for pension contributions of £60,000 a year.

“For all but the lowest-paid workers,” says Thornley, “the value of any pension payments made by the employee can be enhanced if the pension contributions are made via salary sacrifice. This means the employee agrees to accept a lower salary in exchange for higher pension contributions from their employer.” This approach creates NI savings for both the employee and employer.

Given the recent hike in NI contributions paid by employers, Thornley reckons that this route will be particularly attractive for businesses from 6 April 2025. Indeed, she notes that the higher 15% rate and lower threshold will particularly hit larger businesses and those with many part time staff.

Trivial benefits

Another area for employers to consider are tax-free gifts to employees on occasions such as birthdays, weddings or Christmas through the trivial benefits rule. Introduced in 2016, this rule provides a statutory exemption from income tax and NI for employees and employers, but only where the cost of the gift, including VAT, does not exceed £50 per employee; the gift is not cash, or a voucher which can be exchanged for cash; the gift is not provided under a salary sacrifice or other contractual arrangement; and the gift is not provided in recognition of past or future services.

Thornley cautions employers that “they need to be aware this is an all or nothing exemption; if the cost of a gift exceeds £50 then the full value is taxable under the usual benefit in kind rules”.

She also says that directors and office holders of small or family businesses must also take care: “Where the company is owned and controlled by five or fewer individuals, these individuals – together with any employees related to them – can’t receive more than £300 of trivial benefits within any given tax year.”

Home working allowance

If there’s one thing that Covid along with technology did, is that it accelerated the move to more staff working from home for some or all of the week. Where employers have employees in this situation, then, says Thornley, it is possible to pay them a simple, flat rate payment of £6 per week without creating a tax liability to cover any additional costs of working from home.

But to qualify for the payment, she says that “employees must be working regularly from home under a homeworking arrangement with their employee’. She adds that “this must be formally agreed – just taking work home in the evenings from time to time does not count”.

Mobile phones

Something else that Thornley says employers can give staff tax-free is, subject to a couple of conditions, a mobile phone. Provided these conditions are met, she says “the rules are pretty generous as the employee can use the phone privately, without creating a tax charge”. However, an employer can provide only one SIM card and/or phone per employee and the contract for the card or phone must be in the employer’s name.

Again, Thornley reminds that the phone must not be provided as part of a salary sacrifice arrangement else the tax-free benefit is lost.

Long service awards

Staff are more mobile and tend to move between employers, but that doesn’t mean that some stay for the duration. In this circumstance and employer can give an award to mark long service can be made to staff tax-free who have a minimum of 20 years’ service. With an allowed value of up to £50 per year of service, Thornley says that “there is the potential to make a gift of up to £1,000 once an employee reaches this milestone”.

Crucially she highlights that the award cannot be cash, must be something tangible, and not something which can easily be exchanged for cash – although vouchers which can be exchanged for goods are allowed. Given the potential value of the award, it makes sense to consult with the individual in question before purchase.

Big business benefits

For the larger business able to cope with the administration costs, Thornley points to some useful tax-free benefits around workplace canteens and workplace nurseries which could help to encourage staff to come into the workplace.

On the first she says that “employers can provide free or subsidised meals tax-free provided such meals are made available to all staff – or all staff at a given location – and provided at the employer’s premises or in a workplace canteen off-site.”

An approved workplace nursery is clearly a substantial undertaking, but Thornley thinks it could be an enormously popular benefit which may both attract and retain talent.

Staff welfare

Lastly, Thornley notes “that there are other ways in which employers can help with the health and wellbeing of their workforce without creating tax problems”.

Here she outlines that employers can provide one health screening or one medical check-up per employee, per year, tax free. Similarly, employees can be provided with free flu jabs either on site, or via a voucher for the employee to receive a jab at a pharmacy.

And where staff use computer screens, employers can pay for an eye test. Employers can also contribute towards the cost of any glasses or contact lenses needed.

Summary

There is, despite tightening of the rules, much that an employer can do to offer extra benefits to staff without either raising the hackles of HMRC or increase the tax burden on employees. As ever, though, the key is to ask staff what they want and to take good advice.

Top tips from the BPIF

Imogen O’Lenskie, BPIF HR adviser, is seeing print sector employers increasingly offering a variety of perks and benefits to attract and retain talented staff. Common benefits that are appearing on her radar include pensions, company cars, vouchers, cycle-to-work schemes, trivial gifts, and profit-related bonuses. As she comments: “These incentives are designed to enhance employee satisfaction and loyalty, which is crucial for maintaining a stable and productive workforce.”

O’Lenskie gives the economic context and cost considerations of what print businesses are giving. She says that “while the UK economy shows signs of sustainable growth, many companies remain cautious about additional expenses tied to employee benefits. Historically, the industry has not excelled in this area, even before the economic downturn”.

However, she believes that low-cost benefits can deliver substantial returns by improving engagement and reducing absenteeism – “tax-efficient options, such as pensions, childcare vouchers, and cycle- to-work schemes, are particularly attractive because they reduce tax liabilities for both employers and employees, making them cost-effective alternatives to salary increases”. Of other perks, such as Christmas parties and small seasonal gifts, O’Lenskie reckons that they can “provide excellent value, boost morale and demonstrate appreciation”.

Salary sacrifice gains greater relevance

Like many observers, O’Lenskie has seen the October budget’s reduction in National Insurance thresholds amplify the relevance of salary sacrifice schemes. As she outlines it, “these arrangements allow employees to forgo a portion of their gross pay in exchange for tax-free or tax-advantaged benefits. Lower thresholds increase employer savings on NI while also reducing employees’ tax burdens, making these schemes increasingly popular”.

She thinks that “this particular budgetary change is likely to encourage more printers to adopt salary sacrifice arrangements”.

With this in mind, along with the broader focus on workforce retention, it’s clear that there is an importance being placed on offering “benefits that align with employee priorities, such as professional development and wellness initiatives”.

So, from O’Lenskie’s standpoint, to stand out in the job market, printers should consider a strategic approach to their benefits packages and advises a number of steps they could take:

Understand employee priorities Use surveys to identify what employees value most. Younger staff might prioritise flexible working or eco-friendly perks, while older employees may focus on pension enhancements.

Leverage tax-efficient options Implement salary sacrifice schemes for items such as pensions and childcare vouchers. These should tie in with government policies and offer significant savings.

Offer low-cost, meaningful gestures Trivial gifts and profit-sharing bonuses can foster goodwill without overburdening budgets.

Promote financial education Help employees maximise the benefits available to them by offering access to financial advice or education.

Stay adaptable Continuously review benefit offerings to ensure they remain competitive and aligned with tax changes.

Manage cost

Another consideration for print businesses, according to O’Lenskie, is affordable perks such as free refreshments, discounted gym memberships, and small seasonal gifts as these can all provide significant value: “These benefits, often exempt from taxable benefit rules, enhance workplace culture and employee morale. Such initiatives, though modest, do contribute to long-term workforce stability and satisfaction.”

Ultimately, O’Lenskie says firms can support business success through employee benefits. She notes that in a competitive job market, “printers can achieve a balance between cost control and employee satisfaction by offering strategic, tax-efficient benefits.” Also, she says that “by focusing on perks that matter most to employees and leveraging tax advantages, businesses can improve retention and engagement while managing costs.”