Design fails to exploit tax gain

Design companies are failing to take full advantage of tax relief offered through profit-related pay (PRP) schemes, according to a new survey.

Chartered accountant Binder Hamlyn surveyed design, PR, advertising and sales promotion agencies and found that a third of them have taken up PRP schemes, most in the past two years,

compared with the national average of one in eight companies.

However, nearly two thirds of the respondents are not exploiting the tax benefits, says Binder Hamlyn. These allow employees paid up to 20 000 to get 20 per cent of their PRP tax-free, and those on higher salaries to get relief on the first 4000.

“Tax benefits of a PRP scheme can be considerable and should not be discounted when planning bonus packages and projected profit margins,” says Binder Hamlyn manager Sharmila Gohil.

Interbrand introduced a PRP scheme this year for all employees to benefit from tax-free bonuses. “It’s not intended to be a salary sacrifice scheme,” says Interbrand managing director Janet Fogg.

Fifty-seven per cent of those consultancies which do not operate formal PRP arrangements use some other form of bonus scheme, the survey found. “Given that PRP schemes were endorsed in the Chancellor’s November Budget, marketing services firms which do not have such schemes should be seriously considering the advantages of PRP for the future,” says Gohil. Other large consultancies are known to be considering similar systems.

Most companies adopting a PRP scheme employed between 26 and 50 employees and had an average turnover of 5.5m a year.