How many readers felt benevolent and gave generously to Red Nose Day? Maybe you gave £10, £20 or £30 to the cause, or even more. It will have been up to you, your personal decision as to whether the cause was a good one. We all have our favourites, whether it is one of these major charity days or perhaps just a coin or two in a local collection box.

How about a donation to our Health Service then? Would you give £50 or more without a second thought?

Did you know that you are going to give a donation? From 6 April 2003 you started to pay the extra National Insurance Contributions brought in by the Chancellor to help pay for the costs of the Health Service.

Do you know how much you are paying? Did I mention £50 above? Well think much higher figures.

Previously, an employee’s contributions were capped. Some of you will have enjoyed the benefit of that cap and will only have paid National Insurance Contributions on some of your income. The new contribution regime is a “fair” one, however, and indiscriminately takes an additional 1% from all but the first £4,615 of an employee’s income. There is no cap for this additional 1%.

How will this affect you?

Remember that the contributions paid by your employer are also going up by a similar amount (an additional 1%) and so there is a significant cost to many businesses following the introduction of this new charge.

Are there ways to reduce these costs? Well yes, employees can consider taking their earnings in the form of benefits in kind. The problem is, how many employees are likely to be able to influence their employers sufficiently to change the way they are paid? Secondly, most of you no doubt actually prefer to be paid in cash rather than “in-kind”.

Paying employees a salary plus giving them benefits was popular a few years back as there were no NIC charges on payments “in-kind”. Since then, however, the authorities have caught on and initially introduced an employer’s NIC cost on cars and fuel, and more recently on all benefits. This stopped those high flyers, who were paid over the earning cap for employees, from arranging for the top end of their earnings to be paid in the form of NIC free benefits. Many “artificial” schemes were also closed.

The problem is that simple schemes, such as those that paid vouchers, and were considered a real benefit to many employees, were also closed. Both employer’s and employee’s NI contributions are now payable on most vouchers (nursery vouchers being a notable exception). So you won’t be able to rush in and ask your employer to pay you in vouchers after 6 April (unless of course you have a significant number of children at nursery!).

The advice is to therefore chip away at what you can. Those of you with access to employer’s Flexible Pay Schemes, offering non-cash benefits, may like to review the options available to you.

For instance, are you one of those employees who came out of the company car scheme in recent years, presumably taking a cash alternative?

If so, then perhaps you should think about redoing your calculations. Cars are increasingly being manufactured with the “Green” company car driver in mind and CO2 emissions are dropping. Could your choice of private or company car now be worth a second look? Are the benefits of using a company supported car now back in the frame?

The cash allowance that you have taken is, of course, charged to NIC and will be at the full rate if your total cash earnings are below the Upper Earnings Limit of £30,940 a year and at the new 1% charge on cash earnings thereafter.

The calculations to compare cash verses the company car, and the separate but equally valid calculations for fuel, can be complex and need to be prepared with care. To assist you can run sample calculations on the calculators found on www.cartax.co.uk that link in with Driver Choice.

Graham Oven
Tax Manager
Deloitte & Touche