Employers looking at ways to minimise the impact of recent tax changes for higher earners have some tough decisions to make, according to Lesley Fidler, tax director, Baker Tilly Tax and Accounting.
Addressing delegates on the first day of Employee Benefits Live 2010, at the Business Design Centre in London, Fidler explained employers will need to decide whether to boost the salary of higher earners or focus on other benefits to compensate for reductions in the personal allowance and hikes in income tax.
“It’s a disincentive. Employers may have to decide whether they actually going to give [high earners] more salary or not or whether they need to be thinking about share options or listening to what their requests are,” said Fidler.
During the session ‘Getting creative with reward to minimise the impact of recent tax changes for higher earners, Fidler highlighted that as a result of the tax changes, an employee earning £160,000 a year will take home around 60% of what they actually earn. “Higher earners are going to be the higher contributors.”
Fidler added the situation is unclear with regards to high-earning employees that hold multiple jobs. For example, if an employee has three jobs paying £70,000 each, none of their employers will be able to ensure they are taxed at the 50% rate.
In response to a question from the floor about whether corporate wraps could be used to help higher earners navigate the tax changes, she said: “It has got to be so bespoke to be worth doing it suggests that it is not the employer’s role to be doing it. There is the risk of giving financial advice which is dangerous and an illegal place to be.”
When discussing reductions in pensions tax relief for higher earners, yet to be finalised by the government, Fidler advised employers to make savings through a salary sacrifice arrangement. “It is a no brainer if employees are funding pension contributions,” she said.
She also warned employers with employees earning more than £130,000 who are making large contributions into their pensions ahead of any tax changes being announced to take anti-avoidance roles into account.