Employee Benefits Flashcards
Group Life - Registered Scheme
ER’s premiums are allowable as a business expense if used wholly & exclusively for the purposes of the employer’s trade or profession
Premiums are not treated as a benefit in kind to EE’s
Lump sum death benefits are paid free of tax to the beneficiaries of the deceased scheme member no IHT and paid immediately as opposed to having to wait for probate to be granted
Registered schemes are established under a discretionary trust and are administered in accordance with HMRC rules - any lump sum benefits are paid to the trustees who in turn pay them to the beneficiaries.
Relevant Life - Unregistered scheme
Policy must provide a capital sum payable on the death of a person included in the policy before age 75
Policy must not carry a surrender value other than the return of a proportion of the premiums in respect of the unexpired period of risk that has been paid in advance
No other benefits are permitted
Any sums payable under the policy must be paid to an individual or charity beneficiary entitled to them, a trustee or other person acting in a fiduciary capacity who will secure that the sums are paid to a beneficiary
Suitable for members who wish to be excluded from a registered scheme due to them having enhanced protection or benefits that exceed the Lifetime Allowance
Taxation of Relevant Life Policies
Lump sum benefits paid and remaining in the trust will be subject to the normal IHT applicable to discretionary trusts and so normal exit & periodic charges apply
Premiums paid by the ER may be treated as a business expense
Premiums paid by the ER are not treated as a BIK for members
Group CIC
Premiums paid by ER will normally be treated as a business expense so receive tax releif
Treated as a BIK to the EE
Benefits paid to the member are not normally subject to tax
Group Income Protection
The main difference to individual plans is that the benefit is paid to the ER and is treated as a trading receipt
ER then deducts tax & NI before paying the net amount to the EE as sick pay
Premiums paid by the ER usually receive tax relief and are not taxed as a benefit in kind for the scheme members
Types of Income Protection
Non integrated - the benefit is either a % of gross pay without any account taken for State Benefits or a flat amount
Partially integrated - the benefit is a % of gross pay less a fixed deductor to allow for state benefits. Only permitted on schemes with a certain number of members
Fully integrated - the benefit is a % of gross pay. State benefits are automatically included in the benefit calculation. Only permitted on schemes with a certain number of members
Net Pay benefits - this is where the basic benefit is determined by reference to a proportion (up to 90% max) of the member’s normal take home pay. State benefits are automatically included in the benefit calculation. Only permitted on schemes with a certain number of members
Salary Sacrifice - April 2017 changes
Following changes introduced on the 1st April 2017 there will now be differential treatment for these types of cover, depending on whether top up cover has been funded by salary sacrifice or not
When funded by salary sacrifice, GDIS & GPHI premiums will be liable to income tax & ER NI. This will significantly reduce the attraction of funding such schemes via salary sacrifice
These changes will apply to all new plans from April 2017 and will be fully implemented for existing plans by April 2018
Salary Sacrifice
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.
A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates
Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance.
In addition, your employer will not have to pay their Employers’ National Insurance contributions on the part you sacrifice. Some employers pass on some or all of these savings to you.
