Original content provided by BDO UK.
There will be few, if any, people in the UK that are not impacted by the rocketing price of energy costs and with 48% of the population in employment, employers may be faced with calls for help and will want to support their employees where they can.
This brief article sets out some of the different ways that an employer can consider in order to provide some assistance until prices return to normal as well as the associated tax and national insurance implications.
Additional pay or bonuses
As with any other cash payments arising from employment PAYE/NIC will be due. There are no reliefs or easements available despite the purpose of the payment.
Reimbursing the employee
If an employer agrees to reimburse an employee for a specific energy bill then this will be treated as a Benefit in Kind (BIK) for tax purposes and reportable on Form P11D at the end of the tax year. This will give the employee a cashflow advantage as if the bill is paid in 2022 they will not begin to pay the tax arising on the BIK until August 2023.
Employers will need to be aware that the reimbursement will be treated as earnings for NIC purposes at the time of payment so both the employee or employer will pay NICs at that time.
If the employee works from home the potential exists to treat some of the energy costs as a business expense and be exempt from tax/NIC.
Paying the energy provider
It may be possible for an employer to arrange to pay the energy provider directly on behalf of the employee. This again would be treated as a BIK and the tax treatment is the same as for reimbursement. An energy provider may also be prepared to issue a bill in the name of the employer but whether or not this happens the underlying supply contract will remain between the employee (i.e., the energy customer) and the energy provider. This means this form of payment will also be treated as earnings for NIC purposes for both the employee and employer again at the time of payment.
If an energy provider is prepared to enter into an energy supply contract with an employer to supply an employees’ property directly the same tax treatment would arise, but no employees NICs would be due. It is perhaps unlikely however that a supplier will wish to do this for regulatory reasons.
Using salary sacrifice
Salary sacrifice is a very common mechanism for delivering BIKs. However, if this was used to help pay an employees’ energy costs on a £ for £ basis, the tax treatment is the same as listed above for BIKs. The NIC treatment would be a repeat of the position for paying the energy provider direct. In this instance salary sacrifice is probably not a worthwhile option for employers to consider.
However as a longer term option utilising salary sacrifice to deliver an EV car for an employee can be cost effective and also help with your ESG agenda. See (here) for further information.
Making a loan
Perhaps the most tax/NIC effective way to assist employees would be for the employer to make an interest free loan. If the loan is capped at less than £10,000 then it has no tax implications and is not reportable as a BIK. It also has no NIC implications - this cap includes any existing loans the employee may have from their employer. Higher value loans are a reportable benefit.
An employer can agree repayment over whatever terms it is comfortable with or write the loan (or part of it) off at a later date. If a write off occurs then the sum involved will be treated as a BIK and will be subject to NICs when that happens. The terms of the loan should not include any intention to write it off at the outset as this see HMRC treat it the loan as earnings from the start.
Further help
If you’d like to explore any of these options or discuss any other employment tax matter please speak to one of our local Employment tax team listed to the right.