Whether you want a new bike to cycle to work and stay fit, need the latest smartphone or want a state of the art tablet to do your work on, by entering into a salary sacrifice arrangement with your employer you can reduce the cost and pay less tax at the same time. It’s a new way to get the things you want without entering long-term and costly contracts that can drain finance.
The idea comes from the same company that runs the CycleScheme who latched onto the Government’s initiative to lower carbon emissions by offering tax free bikes that can save up to 42% on cost. It involves having an agreement between an employee and their employer whereby the bike is essentially hired out and paid for through their income.
When an employer signs up to the scheme any member of staff can then log on for free and essentially hire the bike of their dreams for a short period of time (normally 12 months) with reductions to their salary. At the end of the term they can then pay for the bike and own it outright for a much lower cost than if they bought it through a standard HP agreement.
The CycleScheme has been so successful that the company is now running similar ventures for phones, computers and childcare offers. The PhoneScheme operates much the same way and was launched in January this year, allowing employees to get hold of great new smartphones at much lower prices. For example, if you wanted to buy the iPhone 6s you’d be looking at a standard price of around £634. With the PhoneScheme you make sizeable savings which means the eventual cost of the phone would be £493 give or take a few pennies.
What is a salary sacrifice arrangement?
It all works through what is called a salary sacrifice arrangement which is why your employer needs to be registered and involved. This agreement basically asks you to take a reduced salary in return for some other benefit, for instance, a brand new mobile phone. Because this is a non-cash benefit it means you get some great perks from the tax man.
How does it benefit you?
First of all, reducing your salary and exchanging it for a phone means that you pay less tax and National Insurance contributions. The payment for your new iPhone or Samsung is made by your employer who also benefits by getting to make less payments in NI contributions and gets their money back because you are on a lower salary so they don’t have to pay you as much. At the end of the 12-month hire period you can either opt to:
- Extend for a further 12 months and then own the phone outright.
- Pay 25% of the phone’s original price and own it outright there and then.
- Return the phone back to PhoneScheme with no extra payments as long as it’s in good working condition.
Not only that, but because you are only getting the phone, you are free to take advantage of any network provider you want without having to enter a long-term contract. That means you can shop around for the best rates or simply put in your current SIM card.
For employers, it provides a great way to cut down on costs overtime and supply staff with the right phones to work in their business. Nowadays, more and more employees need to use smart devices such as iPhones to do their work. It means your staff are fully equipped to deal with what the modern world throws at them. They are easy to contact, can network effectively and can use cloud services to stay up to date. Plus they get a brand new phone in the bargain.
Across the UK, employers are finding new ways to maximise their operating budgets and opting for a salary sacrifice arrangement. With something like PhoneScheme, they can save up to 13.8% on National Insurance contributions as well.
Moreover, because you are helping your employees get some of the latest smartphone kits at a lower price overall, this helps you develop more staff loyalty. Signing up for the scheme is easy to do and can be used for a number of things. The CycleScheme is helping employees get fit and because it’s tied into green issues you’re also finding a great way of cutting down the collective CO2 emissions of your company when staff cycle into work. The CycleScheme stretches to accessories too which can all be incorporated into the same salary sacrifice arrangement.
Apart from the PhoneScheme offer, you can also take advantage of the ComputingScheme which allows employees to better spread the cost of the latest PC or tablet devices. It’s an ideal way for businesses to ensure that their staff have the latest equipment and improve their productivity.
With its launch in January, PhoneScheme has certainly become a great new way for people to access updated technology. It’s beneficial to both employees and their employers and can help reduce costs for both parties. There are a few caveats that you need to be aware of, of course. The employee needs to be earning above the minimum wage and you need to be paid through Pay as You Earn or PAYE. You can only order 1 phone at a time and the salary sacrifice should not take the employee below the minimum wage.
If you think that you could be paying almost £20 more a month on a normal contract with a phone supplier, the savings are pretty good from the outset with PhoneScheme. All you need to do is make sure that your employer is signed up to the scheme and then you can choose your phone and apply online. Then it’s a simple matter of your employer logging in and agreeing to the arrangement. Because you are doing all this through your employer, you don’t even have to undertake a credit check.
Get together with your boss today and see how PhoneScheme can make a difference to you both.