Tax and NI

9. Tax and Employees

9.1 The employer must deduct employees' income tax from each wage payment. The tax must then be sent to HM Revenue & Customs on a monthly or quarterly basis.

Any overpayment or underpayment of tax will be corrected once employees have sent their tax returns in.

• Employers can make quarterly payments of PAYE and NI if their average net monthly payments fall below £1,500.
• Most redundancy payments under £30,000 are tax free.

9.2 Employee benefits are generally taxable. There are some exceptions:

• Payments into HM Revenue & Customs-approved pension schemes.
• Approved schemes to encourage employees to take up shareholdings.
• Low-interest loans of up to £5,000 from the employer.
• Workplace childcare and up to £55 per week of childcare vouchers for approved childcare and welfare counselling provided by employers.
• Provision of some office services, equipment and consumables. For example, provision of a mobile phone or the loan of a computer.
• Some less commonly-used benefits.

9.3 If you trade as a limited company, you could cut the tax bill for your employees by introducing tax-favoured share schemes. Such schemes can provide employees with incentives for staying with the company and promoting its success.

• Enterprise Management Incentive schemes allow small firms to give key employees tax-favoured share options. To qualify, companies must be independent with gross assets of less than £30 million and fewer than 250 employees. The total value of shares under option is limited to £3 million.
• Share Incentive Plans (SIPs) allow companies to give their employees up to £3,000-worth of shares each year, free of tax and NI.Some or all of this can be awarded in respect of performance targets.Employees can buy shares, free of tax and NI, out of their pre-tax salaries, up to a maximum of £1,500 a year.Employers can give their employees up to two free shares for each share purchased.Provided the shares are held for at least five years, no tax or NI will be payable.