I want to incentivise a very good trainee. If I simply pay the monthly repayments on the employee's car purchase that would be classified as additional remuneration subject to tax & NIC so they would loss out on their tax credits, effectively meaning they are worse off than before. How can I best cover the cost of the car purchase yet (if possible) not cause a reduction in overall household income?
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You are providing a benefit which increases his taxable income. If that leaves him worse off, don't do it. Presume you can provide non-taxable benefits? A bike, maybe??
This is the problem with Tax credits - there is a payroll/tax credit trap.
Incentives don't have to be monetary, e.g additional holidays may work, and as Accountant A said, try the non taxable benefits available.