Building a UK benefits package

A benefits package is a recruitment tool and a tax event at the same time. Most overseas groups get the first part roughly right by extending what they already offer, and the second part entirely wrong by not telling anyone in the UK about it.

What UK candidates expect

• Holiday above the statutory minimum. The statutory entitlement is 5.6 weeks including bank holidays. Twenty-five days plus bank holidays is what a professional UK candidate reads as normal, and the gap between those two is noticed immediately.
• Pension above the statutory minimum. The employer must contribute 3% of qualifying earnings. Five per cent of full salary is a common professional offer, which is a cheaper way to improve an offer than salary because it carries no National Insurance.
• Private medical cover at senior levels. It is a taxable benefit and it is expected anyway.
• Flexible or hybrid working. Employees have a statutory right to request flexible working from day one, and in most professional roles a rigid five-day office requirement narrows the field sharply.

What translates badly from elsewhere

Health insurance as the centrepiece of a package does not land the same way in a country with a national health service; it is valued, but it is not the deciding factor it is in the United States. Generous unpaid leave is not a benefit where paid leave is statutory. Stock in a parent company is attractive but is taxed through UK payroll when it vests, which is covered on the share schemes page and is the most commonly mishandled item.

The tax-efficient ones

Pension contributions carry no National Insurance for employer or employee, which makes them the most efficient part of any package. Salary sacrifice arrangements, where an employee gives up salary for a benefit, work well for pensions and for electric cars, where the tax treatment is deliberately favourable. They work badly, or not at all, for most other things since the rules were tightened. A mobile phone provided by the employer is exempt. A modest annual staff event is exempt within a cost per head. Trivial benefits are exempt within tight limits that are easy to breach without noticing.

Reporting from the start

Every taxable benefit has to be reported, either through payroll or on the annual return due each July, with employer National Insurance payable on the total. Deciding this at the point the benefit is introduced costs nothing. Discovering it two years later means unwinding the position with tax, interest and penalties, and telling employees they owe money on something they were given. The benefits and P11D page covers the mechanics.