Making the most of fringe benefits
More than just a salary
Although the main rate of employee national insurance contributions (NICs) is just 8%, fringe benefits still have a definite tax advantage when compared to conventional salary. Even if there is not much, if anything, in the way of income tax saving, directors and employees can avoid NICs. Certain tax-advantaged fringe benefits will also mean no, or little, NICs for the employer, with these types of benefit particularly suited to a salary sacrifice arrangement. Such arrangements are now more beneficial than ever with the rates of NICs payable by employers having increased to 15%.
However, at the November 2025 Budget it was announced that the tax advantages of salary sacrifice arrangements involving employer pension contributions are to be curtailed, although the change will not happen until April 2029. The change will remove the NIC exemption for salary sacrificed pension contributions above Åí2,000 per year.
Private medical and dental cover is by far the most popular taxable benefit, with company cars second. The number of directors and employees with company cars has decreased in recent years, but figures for 2022/23 and 2023/24 show a marked increase. Although the company car benefit can easily be very tax inefficient, the latest HMRC figures show a major shift towards lower emission vehicles, especially those with zero-emissions. Zero and ultra-low emission company cars now account for over 60% of the total.
