24 June 2022
As employers develop hybrid working arrangements, it’s becoming clear that the demand for certain benefits will be affected. There may also be an impact on whether the qualifying criteria for exempt benefits can be met.
In a previous article we focused on the key employment tax considerations arising from a move to hybrid working. We covered the possible impact on the permanent workplace, and the consequences of providing equipment for remote working. Here we explore some emerging trends and potential pitfalls in relation to benefits in kind that employers need to be aware of.
Benefits in kind have always been an important factor in attracting and retaining the best talent. Providing these employee benefits does not come cheap. Not only does the employer often have the cost of providing the benefit, it also has the cost of the employer Class 1A National Insurance contributions (NICs) at 15.05 per cent of the benefit value, and the potential for corporation tax and/or VAT disallowances.
That’s why it’s important for employers to consider their benefit offering in conjunction with a move to hybrid working. This will ensure that value for money is achieved and that the benefits on offer are still attractive to employees.
Common benefits that may be affected by a move to hybrid working include:
Company car and car fuel benefits
Company cars remain one of the most expensive benefits in kind for the employer. This is especially true for employers providing fuel for the private use of company cars.
Hybrid working will result in a reduction in private mileage for most employees, including the commute to the office. This may make the provision of a ‘perk’ company car less attractive, unless they are electric with very low benefit in kind rates.
Less driving uses less fuel. Employers still offering private fuel benefits should therefore revisit arrangements to ensure that under hybrid working, the tax cost of this benefit for employees does not outweigh the cost of the actual fuel used for private journeys.
Even before the shift to hybrid working, we often found that private fuel arrangements represented no actual ‘benefit’ financially for the employee, but were an expensive cost for the employer ie the cost of the fuel plus the VAT scale charge and the 15.05 per cent Class 1A NICs charge. A move to hybrid working is therefore an ideal opportunity to reassess whether company cars and private fuel benefits represent value for money for either employer or employee.
Cycle to work arrangements
Cycle to work schemes have become one of the UK’s most popular salary-sacrifice benefits since their introduction in 1999. Crucially, one of the qualifying conditions for the tax exemption is that employees must use the cycle or equipment primarily (ie 50 per cent of the time or more) for journeys between home and the workplace or between two workplaces.
In the absence of any concession, many employees would have been unable to satisfy this condition through periods of lockdown. Fortunately, the government recognised this and introduced a limited, temporary concession. It confirms that, provided employees had joined a scheme, with a cycle or cyclist safety equipment provided to them on or before 20 December 2020, the ‘qualifying journeys’ condition will not be applied until after 5 April 2022.
However, employees who have had a cycle or cyclist safety equipment provided after 20 December 2020 do not qualify for this concession.
All of this presents a dilemma for employers. If new joiners after 20 December 2020 cannot satisfy the qualifying journey condition, the exemption will not apply.
However, if new joiners are excluded from the scheme, this is likely to breach a further condition that stipulates that, to be a qualifying scheme, cycles must be available to all the employer’s employees. In addition, the concession that applied to those who joined arrangements before 20 December 2020 extended only until 5 April 2022.
From 6 April 2022 there is a risk that many employees who have moved to hybrid working arrangements will cease to meet the qualifying journey condition.
Employers offering cycle to work arrangements therefore need to monitor the situation carefully to ensure ongoing compliance. In the absence of any further concessions or legislative change, the future viability of such arrangements may be in question.
Workplace canteens have diminished in popularity over recent years but are still a tax-efficient benefit for many employers. The pandemic lockdown and move to hybrid working may, however, weaken their viability.
From a tax perspective, one of the qualifying conditions for exemption is that all of an employer’s employees (or all employees at a particular location) have access to a free or subsidised meal or meal voucher. A move to hybrid working in itself will not necessarily affect the entitlement to a free or subsidised meal of a hybrid worker, but employers need to be careful to not inadvertently remove entitlement as part of the new working arrangements.
Travel to work
Another potential casualty in the benefit in kind popularity stakes is likely to be demand for train/bus season tickets and workplace car parking arrangements. Employers should assess likely demand for such arrangements before the next benefit renewal window.
What benefits should employers offer?
The right benefit offering will vary from employer to employer. The best advice is to have regular dialogue with employees and ideally undertake employee surveys.
The hybrid working environment is still developing but we’re already seeing emerging trends. The focus on physical and mental wellbeing has boosted the popularity of benefits like private health care, permanent health insurance, and employee assistance programmes.
Whatever route you follow, it’s important that you’re:
- getting value for money;
- meeting conditions for any tax exemptions; and
- achieving the ultimate objective of attracting and retaining the best employees.
Whether the government will recognise the massive shift in working arrangements with future tax exemptions for benefits, and in qualifying conditions for existing exemptions, remains to be seen.