Salary Sacrifice - Consultation on restricting tax benefits
Following the government's announcement at the 2016 Budget that it was concerned about the growth of salary sacrifice arrangements and their fairness on the tax system, HMRC has published a consultation document on restricting the use of salary sacrifice for the provision of benefits in kind on 10 August 2016. Responses to the consultation are sought by 19 October 2016.
As previously announced, the government wishes to encourage employers to provide certain benefits to employees and so employer pension contributions, employer-provided pension advice, employer-supported childcare, provision of workplace nurseries, and cycles and cyclist’s safety equipment provided under the cycle to work scheme will be unaffected by the proposed changes. Salary exchanged for intangible benefits, such as flexible working or additional holiday entitlement, and payroll giving will also be unaffected.
The consultation proposes that other benefits in kind (whether taxable or exempt) provided through salary sacrifice will become chargeable to income tax and employer NICs on the greater of the amount of salary sacrificed and the cash equivalent specified by statute (if any).
The change will take effect from April 2017, with legislation being introduced in the Finance Bill 2017.
This will mean that employees who, before April 2017, have committed to a salary sacrifice arrangement relating to a tax-exempt benefit in kind that continues beyond that date will be treated as receiving a taxable benefit from that date onwards, and employers will become liable for the corresponding employers' NICs charge.
We will keep you updated with any further developments.If you would like to discuss any issues raised in this article, we have specific taxation expertise advising in this area. For further advice, please contact Melanie List.
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