Partner Article

Teachers - when sacrificing your salary is a good thing…

Unruly kids, noisy classrooms, marking homework, and mandatory attendance at the end of year concert – let’s face it, it is hard work being a teacher.

But it does have its perks, and for those that have kids one of the benefits is that the taxman can be very generous when it comes to school fees.

Many companies offer a ‘salary sacrifice’ scheme. This is where an employee agrees to accept a lower gross salary, in exchange for a non-cash benefit which is exempt from income tax and national insurance contributions.

For most people, this can result in a benefit to their pension or childcare provisions, but an increasing number of independent schools are introducing salary sacrifice arrangements for discounted school fees.

If an employee of a school is provided with a free school place for their child as part of their employment, then a benefit in kind arises equal to the marginal cost of providing that school place. The marginal cost is typically agreed with HMRC to be 15% of the full school fee, although some schools have managed to demonstrate to HMRC a marginal cost lower than this.

If the employee were to pay the marginal cost to the school out of their net salary, then no benefit arises. A school can therefore offer a salary sacrifice arrangement that allows the employee up to an 85% discount on school fees, tax and NIC free, in exchange for a reduction in gross pay that would otherwise be charged to income tax and NIC.

If employees are already receiving a discount on school fees, they can still benefit from this arrangement by increasing their entitlement to discount, in exchange for salary.

So not all bad news for teachers after all….

This was posted in Bdaily's Members' News section by Baker Tilly .