Reproduced from an article by Kiran Kalia of Accountants and Business Advisers PKF, in Issue 16 of Surrey Business News.
Companies and their employees could sometimes be better off by sacrificing pay rises in exchange for parking passes, according to accountants and business advisers PKF. With more Park and Ride facilities becoming available, it is an ideal time to be considering such options. Kiran Kalia, Head of Employment Taxes at PKF in Guildford said: “For some employees, it may be more beneficial to take their next pay rise as season tickets rather than in cash. Employees who pay for their own parking costs do so from their net income, ie. after the deduction of income tax and National Insurance Contributions (NIC). The employer pays 12.8% NIC on salary paid to the employees.
As this is an ordinary home to office commuting cost, there is no tax relief available to the individual. Tax relief, is however, specifically available for employee-provided parking costs and assistance towards a Park & Ride Scheme. If this cost is paid by the employer then it is excluded from the employee’s taxable pay and NIC and the company can also claim a Corporation Tax (CT) deduction. The company can even reclaim the VAT.
“For example, the average daily parking charge in Guildford, Surrey, is £5 or £1,184 for an annual season pass and a higher rate tax payer will pay £823 in tax and NIC before receiving this amount. The cost to the employer with NIC is £2,264. Instead, if the employer provided the employee with an annual pass costing £1,184, and the employee agreed to forego salary of this amount, then the employee would have the benefit of the tax and NIC free parking and additional spendable income of £486 per annum. Furthermore, there would be a reduction of £152 in the employer’s NIC bill.
| "Alternatively, both parties could switch to the Park and Ride scheme, in which case the cost of the pass to the employer would be £204. The employee would receive free parking and a further £1,064 spendable income. The employer’s NIC savings in this case would be £26 per annum. |
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"On an individual basis, the potential savings are interesting but, once spread across a dozen or so employees, they become compelling.
“Employers should be mindful of the employment law and tax rules concerning salary sacrifice arrangements. Furthermore, for the Park and Ride assistance to qualify for relief, the car park must be located within reasonable distance from the employer’s office. Implementing the changes is, however, easily addressed, leaving both parties to enjoy the long term savings.”
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