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SALARY SACRIFICES – A CHANGE IS COMING

SALARY SACRIFICES – A CHANGE IS COMING

In light of the new salary sacrifice rules which will be introduced next month, Vaneeta Khurana, National Head of Employment Tax at international accountancy and advisory firm, Mazars shares her thoughts on what the new draft Finance Bill will mean for employees and employers.

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For quite some time now, the Government has been concerned with the way the provision of benefits has evolved. There is now a growing market for flexible benefits, and salary sacrifice arrangements have gained popularity with employers as they see the obvious benefits of using them as a tool for employee retention.

But many within Government fear that the rise of such benefits could create inequality between those using salary sacrifice to receive a benefit and those employees close to the National Minimum or Living Wage who are unable to participate in such arrangements. Coupled with the Government’s growing concerns surrounding potential loss of tax revenue, and employer’s National Insurance Contributions, it was only a matter of time before the Government made the decision to take action.

Vaneeta Khurana

Vaneeta Khurana

From April 2017, the Income Tax (Earnings and Pensions) Act 2003 will include new sections 69A and 69B and some consequential amendments in other sections. The changes are also extended to capture other combinations of benefits such as the provision of cash alternatives to benefits – the legislation now refers to ‘Optional Remuneration Arrangements’ (OpRA).

But what will these changes mean for employers and employees alike?

Under the new rules, the amount subject to income tax and NICs will be

the higher of the amount sacrificed or the benefit in kind value (the amount which is reported on employees’ forms P11Ds). But this subsequent value will now be subject to Income Tax and employer’s Class 1A NICs which is collected by HMRC via the P11D/P11D (b) process (or payroll where registered with HMRC) . That being said, it is not the Government’s intention to remove any existing Class 1 NIC savings on benefits provided by way of OpRA. A number of benefits will be affected by the introduction of the new rules but the main ones of note will be:

  1. Health Assessments
  2. Mobile Phones and other technology devices
  3. Cars
  4. Car Parking
  5. Direct Product

One really interesting thing to come out of these new changes is the effect they will have on tech schemes. If an employee sacrifices salary in exchange for technology through their work, usually they pay for it over a period of time say for 2, 3 or 4 years, and pay tax, based on 20% of the market value at the time of purchase, under the ‘use of asset’ rules – this is where ownership of the technology remains with the employer during the contract

At the end of the contract, and when ownership passes to the employee, the tax due effectively takes into account the employee has paid 20% ensuring that they don’t pay more than 100%. It is still not clear whether this ‘off-set’ will be allowed under the new rules and if not, employees will be ‘double taxed’ which is against the spirit of the Government trying to ensure that people/ businesses pay the right amount of tax at the right time.

HM Revenue and Customs (HMRC) has produced some additional guidance with many examples of how the new legislation is intended to work, but with only weeks before the legislation comes into effect, there are still some areas where further clarification is required.

In conclusion, I think we’re moving towards what I would call ‘salary packaging’ rather than salary sacrifice. Now people are deciding how much of their overall pay package they want to pay for in salary and how much they want to take as an allowance towards benefits.

By using an allowance towards benefits, employees are essentially overcoming any changes in the law as they are gaining the same tax and national insurance advantages as they do now.

Here at Mazars, we provide a joined-up approach to help our clients. I am an employment tax specialist but we also have employee benefit experts.This allows us to approach each salary sacrifice case from two angles – from the employment tax point of view – and looking at how it applies to the benefits themselves. Such joined up thinking means we can help our clients review and plan for a strategy.

It is really important that employers communicate with their employees effectively and positively making sure they know the facts including: what will happen as a result of the new rules; what benefits will be affected; what the changes will mean for them financially and what the plan of action is.

It is also important to make sure employers speak to an expert in the area who will be able to help position employer benefits so that they still work or replace them with more attractive alternatives. Despite all the impending changes, there are a number of benefits in kind that still gain employee NIC advantages. The key is to look at what is available and decide which ones would be best to add to your offering.

Banking

Standard Chartered Bank partners with Microsoft to become a cloud-first bank

Standard Chartered Bank partners with Microsoft to become a cloud-first bank 1

Standard Chartered Bank and Microsoft Corp. on Tuesday announced a three-year strategic partnership to accelerate the bank’s digital transformation through a cloud-first strategy. This partnership marks a significant milestone for Standard Chartered in making its vision for virtual banking, next-generation payments, open banking and banking-as-a-service a reality. Leveraging Azure as a preferred cloud platform, the companies will also co-innovate in open banking and real-time payments to help the bank unlock new banking experiences for clients.

Standard Chartered Bank partners with Microsoft to become a cloud-first bank 2

Embarking on a cloud-first strategy

As part of its digital transformation, Standard Chartered will adopt a multicloud approach, where significant applications, including its core banking and trading systems and new digital ventures such as virtual banking and banking as-a-service, will be cloud-based by 2025, subject to regulatory approvals. The bank will also adopt a cloud-first principle for all new software developments and major enhancements.

As technology reshapes the banking industry, Standard Chartered recognizes that a cloud-first strategy is critical to the bank’s ambition to make banking simpler, faster and more convenient. By being digital-first, the bank will be able to meet the demand for seamless banking virtually anytime, anywhere, and make banking more accessible to people across its network.

Michael Gorriz, Group Chief Information Officer of Standard Chartered, said, “Cloud is a cornerstone of Standard Chartered’s strategy to meet the present and future banking needs of our clients. Cloud providers have invested massively in the reliability and automation of infrastructure and platforms. Using cloud services improves our ability to be agile and innovative, while increasing our operational efficiency and resilience. As disruption in the financial industry continues, we can focus on client benefits by deploying our solutions quicker and allowing for faster integration of new business models and partners. To realize our digital ambitions, Standard Chartered has chosen Microsoft as a strategic partner and this partnership marks a major milestone for the bank in adopting a cloud-first approach.”

Bhupendra Warathe, Chief Technology Officer, Cloud Transformation at Standard Chartered, added that “The pandemic has shone a spotlight on the need for businesses and banks to be resilient from a risk mitigation, cost and security perspective. With the increasing trend of an always-on digital economy, commercial and consumer clients are looking for applications and services that empower them to do online banking from anywhere, flexibly and efficiently. The speed and scale of continuous innovation offered by Azure allows us to innovate with the latest AI services to meet evolving client needs. We can pilot new apps in one market and scale them rapidly across others. This is especially important for a bank with a footprint as broad and diverse as ours.”

Standard Chartered will adopt Microsoft Azure as a preferred cloud platform to meet the bank’s need for resilient data centers and cloud services and addressing customers’ security, privacy and compliance requirements across the bank’s global footprint.

The first set of capabilities to move to Microsoft Azure will be Standard Chartered’s trade finance systems, allowing for seamless cross-border trade for the bank’s corporate and institutional clients.

The partnership will also advance the bank’s digital workplace transformation with Microsoft 365 and Microsoft Teams providing modern productivity and collaboration tools to Standard Chartered’s 84,000 employees across its 60 markets.

Co-innovating the future of banking

Standard Chartered will also use Microsoft Azure artificial intelligence (AI) and data analytics capabilities to enhance and automate banking processes as well as deliver hyper personalization of its client products and experiences. Co-innovation in open banking application programming interface (API) and Internet-of-Things-based, real-time payments will also help the bank unlock new banking experiences for clients.

Bill Borden, Corporate Vice President of Worldwide Financial Services at Microsoft said, “Cloud computing is an enabler for financial institutions to modernize their infrastructure and systems, to gain the agility they need to respond to competitive pressures, regulatory environments and customer demand. We are committed to helping Standard Chartered Bank in its ongoing digital transformation journey as it strives to address evolving customer needs and build the next generation of banking experiences.”

Addressing the social needs of communities in the emerging markets

Standard Chartered strives to understand the evolving needs of its communities and be an enabler for change. As a part of the strategic partnership, the bank and Microsoft will explore sustainable finance and business initiatives to expand sustainability across the industry.

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Banking

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 3

By James Herbert, CEO & founder, Hastee

Let’s begin by looking at how our brains are wired. Think about the hunter-gatherer mindset: when we expend effort, we expect an immediate reward.

It’s therefore no surprise that over time, different areas in society have adapted to our nature as humans. Almost everything we want, we can get on-demand. Whether it’s instantly streaming movies on Netflix, online shopping from Amazon, or fast-food delivery from the likes of Just Eat. And, because of such technological innovations our expectations have accelerated when it comes to the pace of delivery. This isn’t individual to us as consumers in our day-to-day lives, it’s also reflected in the workplace. We ultimately want work to work for us.

Part of this of course comes down to accessing wages. Workers should be able to access a portion of their earned wages whenever they need it, in advance of the monthly pay cycle – whether to help during challenging times or in day-to-day life. We solved this solutionBut, to take this up a level, ready for the future, we introduced the world’s first Earnings on Demand contactless debit card, powered by Visa – giving users access to their accrued earnings in real-time, with the card’s balance dynamically increasing every day they work.

So what is the card, and how will it change how we access earnings in the future?

The basis is very much the concept of Earnings on Demand. At university I set up a company called Brightsparks to connect students with work opportunities so they could earn money. Yet I noticed a common trend. With students often having to wait for the monthly pay cycle to get their earnings, many were having to turn down work simply because they couldn’t afford the travel day-by-day. It became very apparent that not having £20 today could stop them earning £200 tomorrow.

It struck me that payday itself doesn’t have to be a rigid construct that people have to wait for. But this isn’t specific to students. Liquidity is a widespread issue faced by people in all industries and of all ages, and according to our most recent Workplace Wellbeing Study, 82 per cent of people turn to high-cost methods of financing to tide them over when needed.

The Hastee Card effectively makes wages directly accessible: it simply lets people spend a portion of  what they’ve already earned.

Some people might wonder why they’d want to step away from the standard monthly pay cycle. But consider this: the monthly payroll (via a cheque) only came about in the 1960s as an Act of Parliament. Before this, most people were paid weekly in cash. The first major firm that shifted to monthly payments did it for cost-cutting. It worked for the employer more than the employee. In fact, that firm’s employees had rejected their employer’s change of payment type when it was first trialled a decade before (look up ‘Pye Radio’). So the way that workers and organisations interact around pay is not set in stone – it changes as technology and society shifts.

The way we perceive and use money keeps evolving. Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged. It’s only a matter of time before disruption becomes more widespread.

Looking at it from the employer side, it has its benefits too. Before the climate changed, businesses were accommodating enhanced workplace benefits such as no-desk policies, flexible or remote working. In all cases by businesses offering more, they tend to see a more engaged, happier and less financially stressed workforce – leading to increased productivity.

Earnings on Demand is ultimately a perk that presents an ethical alternative to high-cost credit options such as payday loans, credit cards and overdrafts. And existing solutions offer zero impact on payroll processes, zero impact on the cashflow of the business and are designed for quick, simple integration.

The Hastee Card is an evolution of this all – preparing for the future. It builds upon and enhances the user experience by reducing friction and offering immediate spending power as well as a path to greater benefits such as cashback and rewards in the not-to-distant future.

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Banking

Going branchless: How banks can keep customers coming through the virtual doors 

Going branchless: How banks can keep customers coming through the virtual doors  4

By Richard Kelsey, Head of Software Sales at Backbase

Though you might be familiar with the popular seaside town of Newquay, you may not be familiar with its historic financial district aptly named, Bank Street. Dozens of banks and building societies have dominated this area since the late 1800s. However, the street hit the headlines recently as, 120 years after the first bank opened its doors, the last bank closed them.

This is not new. Bank closures have been part of the news agenda for years, and now, COVID-19 has further accelerated the physical turning into the digital. Across the globe, banks have had to close or limit the operating hours of their in-person locations, forcing banks to digitise at speed. Keeping the pipeline of digital sales flowing for new clients, increasing digital product origination and facilitating those cross-sell journeys to customers is key to survival.

Digital take up

Delivering seamless digital customer journeys was already a fast-growing priority for banking and wealth management organizations pre-pandemic. Research shows that 38% of customers stated UX as the most important factor when choosing a digital bank. In response, banks have been investing in digital technology and collaborating with third-party providers as they strive to offer a superior customer experience and stay competitive. But the global lockdowns – which have restricted people to banking digitally – have turbocharged these trends. Growing demand for digital onboarding, and digitized services to support the ongoing customer journey, must be matched by effective capabilities though.

Plugging the leaks

Conversion leakage is a particular problem during the digital client acquisition process. With branches shuttered during the coronavirus lockdowns, and subsequent openings and customer footfall likely to be severely limited for the foreseeable future, this leakage presents a major, and costly, challenge as institutions seek to convert digital sales and boost their return on investment.

The key is understanding why leakage happens in the first place and time and time again, there are three main trends that cause the most problems:

  1. Switching from a customer’s current provider is too difficult (for example, in transferring bill payments and direct debits).
  2. The digital process is too cumbersome (particularly where existing offline processes are simply put online).
  3. Customers lack human touchpoints and advice when they need it (especially for more complex products).

Combating these levels of leakage requires firms to take an outside-in approach, to see the process from the customer’s perspective. From this viewpoint, they can design a more customer-friendly experience that streamlines the job at hand.

One way to simplify the acquisition journey is to incorporate human/AI advisor interventions at points of friction, where customers may become stuck. Another is to adopt retargeting strategies that address customers who abandon the application process partway – for example, by storing their details in a CRM system and sending them notifications to complete the application, or referring them to an outbound call centre employee who can pick up the process by phone. Such approaches can boost completion rates by 40%, delivering substantial benefits to the bank.

Stronger digital growth

Banks’ return on tangible equity has plateaued globally at approximately 10.5% over the past decade, and the lower-for-longer interest rate environment will add to the pressure. Addressing cost-income ratios has become a matter of urgency.

Firms now face a strategic inflection point. Continuing with old business-as-usual practices will leave institutions struggling to attract new (especially younger) clients, while grappling with an exodus of existing customers and an overburdened cost base. But by digitising processes to enhance the client experience, banks and other financial institutions can increase their revenues and reduce costs, and have a loyal customer base who don’t feel the impact of the branchless bank.

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