Your Money: Worth being paid in perks

GIVEN the choice between being paid in cash, which you can spend on anything you like, or tokens, which restrict you to one shop or allowances for groceries, fuel and clothes, the decision would not be difficult.

Indeed, it is against the law to pay workers in tokens for the company store. The only reason we like to be paid in anything but cash is to deprive the state of its slice.

The Government thought that it had the income tax side pretty well covered. But a recent decision in the House of Lords, Pepper v Hart, put a spanner in the works.

A group of schoolteachers at Malvern College were being taxed on the benefit of being able to have their own children educated at the private school at just 20 per cent of the normal cost.

The Inland Revenue wanted to tax them on the other 80 per cent - the difference between what they paid and the average cost of the school fees. But the court case finally settled the debate.

Workers who receive in- house perks only have to compare what they pay with the marginal cost of providing the benefit.

In practice, the Revenue says that schoolteachers who pay at least 15 per cent of the regular fees will not be charged any tax. Bus and railway staff who do not displace a fare-paying passenger and employees who work for manufacturers that sell their goods to staff at wholesale prices will also escape. Guidelines for airline staff are still being worked out.

The in-house benefit is more widely spread than you might imagine. The tax advice from the company accountant and the conveyancing work available in some solicitors' offices count as perks - but the taxman will not get a look-in as long as extra workers are not engaged to service the staff.

The mobile telephone was also classed as a benefit in 1991, after Norman Lamont declared that he was fed up with having his lunches disturbed by their ringing. In future, those who either make no private calls or who pay for them and a proportion of the line rental (presumably on the grounds that the line was there if they wanted it - even if they didn't use it) also escape.

But even though there is no respite from income tax with some benefits, there are still incentives to pay workers in kind because the National Insurance rules are different.

One group of factories is paying its workers partly in cocoa beans to avoid NI and save the workers about pounds 10 a week - and the company about pounds 50,000 a year.

They don't actually take delivery of sackfuls of the beans. In fact, the company lends them the cash value of the beans. But once a quarter they trade in their pile of beans at market prices and pocket any windfall profit. And they also have a company guarantee to make up any shortfall.

GUARANTEED deals are a great way for advisers to persuade those terrified of losing their shirt to step into the wild waters of the stock market. Some of the packages are not bad deals, as long as you understand what you are buying.

Futures and options are bought to provide the guaranteed part of the deal, while the rest goes into the stock market or an index fund.

The current return from the All Share Index is 4.45 per cent. If this return is reinvested, as it is with all accumulation unit trusts, it boosts investment performance. And if returns from a fund are judged against an index stripped of dividends, the target is not so demanding (although the share prices will reflect coming dividends and fall back after they have been paid).

That, very basically, is how the guaranteed funds work. You are necessarily sacrificing some of the upside to buy the comfort of a guarantee.

It is a bit more precise than matching risk money in equities against 'safe' money kept in a building society to provide a calculated risk.

It works in much the same way for anyone tempted to think that 'you can't lose' with Premium Bonds, because you always get your money back.

You are 'losing' the income you would gain if you had put the money in a deposit account. That is what economists call the opportunity cost of the investment.

Premium Bonds share out the interest they earn (which will drop from 6.5 per cent to 5 per cent in March) unequally - a few lucky winners share it all while most bondholders get nothing. If you do not win, you can walk away with your original investment. But you have still gambled and 'lost' the interest that you could have earned otherwise.