The HMRC have been busy lately!
If you offer any employee salary sacrifice scheme for ‘luxury’ items then this may be of interest...
HMRC has announced plans to limit the tax and national insurance contributions (NICs) savings from salary sacrifice schemes – paid for by employees through reductions in gross salary – in a move that experts say could dramatically redefine both the scale and nature of workplace benefits.
The Salary sacrifice for the provision of benefits-in-kind consultation paper, which closes on 19 October 2016, states that, in principle, the government does not believe benefits-in-kind should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.
Under the proposals, tax legislation could be changed so that when a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs. This means that, even if a benefit is normally exempt from tax and Class 1A NICs, it will now be payable via the amount of salary sacrificed or the cash equivalent set out in statute (if any), whichever amount is greater. Effectively, any benefits that are classed in such a way will be treated no differently to the rest of the employee’s salary.
Tax benefits on life insurance and mobile phones offered to staff via salary sacrifice, as well as schemes that encourage individuals to buy white goods through their payroll, are likely to be removed, while there is some concern that company vehicles could become a “target” for the taxman.
What could change?
Life insurance and mobile phone schemes are specifically named in the document. The government also says there is evidence that the use of salary sacrifice is increasing, with the biggest growth areas including health screening and white goods.
There are a number of schemes, some aimed at public sector employees, that encourage individuals to purchase white goods, computers and televisions at a discount and pay them off over periods of up to two years. These are advertised as ‘effectively’ being interest-free loans.
What may remain unaffected?
Tax arrangements surrounding employer pension contributions (the most common use of salary sacrifice), employer-provided pension advice, employer-supported childcare and workplace nurseries will not change under the new arrangements.
The paper also emphasises that the government favours arrangements that encourage positive behaviours from employees, including bike-to-work schemes and health benefits. These are unlikely to be affected.
There will also be no change where salary is sacrificed in return for intangible benefits that are not taxed and do not rely on a specific tax exemption e.g. when salary is swapped for extra annual leave or flexible working hours. Payroll giving to charities will not be affected.
Comment: By addressing this area, the government aims to clamp down on salary sacrifice schemes by not subsidising some more luxury products that are being put through as employee benefits. This may be a time to review or at least consider your remuneration and benefits package.
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