How Does It Work In Practice

All our employees are employed under a contract of employment and are paid a salary that is subject to UK PAYE and national insurance contributions. As a result of their employment, our employees are entitled to receive discretionary awards from our Trust.

The Trust has been set up by us for the sole benefit of our employees. It has independent Trustees that are able to make discretionary loans to our employees (the beneficiaries) in the form of an interest-free loan as a result of their employment.

Any awards being made out of the Trust in the form of a loan to employees are taxable under the Beneficial Loan Rules as if the benefit were provided by the employer (Benefit in Kind). An individual will pay tax on the HMRC assessed benefit which is the official rate of interest, currently 4.75%. This amount will then be taxed at 20% or 40% depending on whether the individual is a basic or higher rate taxpayer, giving an effective rate of between 1% to 1.9%.

This structure results in our employees enjoying an income of over 80% and in some cases 85% of their contract value after payment of all tax and costs.

Example:-

Discretionary Loan Amount £100,000 Effective tax rate
Taxable Benefit In Kind (BIK) £4,750
Taxed @ 20% £950 (1%)
Taxed @ 40% £1,900 (1.9%)

The Benefit In Kind is a P11D benefit and reported to an employee's end of tax year P60. The benefit in kind is then entered onto an employee's self assessment tax return and paid on or before 31st January. The benefit in kind tax is cumulative and ceases at the end of the tax year in which employment ceases.

We do not use expenses to offset against tax. Any expenses to be charged to the end user company is done without cost to the individual and is paid with salary.