Salary Sacrifice - HMRC Consultation Opens
On 10th August, HMRC launched its consultation on salary sacrifice, giving the clearest indication yet of its intentions going forward. The consultation document confirms the schemes that will remain unaffected, and outlines how the tax advantage could be removed from others.
The consultation will be open until 19th October 2016. Details of the responses, and decisions made in light of those responses, are due to be published in the Autumn Statement 2016. It is the government’s intention that the legislation would take effect from 6th April 2017.
The salary sacrifice schemes that would be unaffected are listed as follows:
- Employer pension contributions
- Employer-provided pension advice
- Employer-supported childcare (childcare vouchers and workplace nurseries)
- Cycle to Work
Other salary sacrifice schemes would be treated as follows:
Where the benefit is currently tax free, a value equivalent to the salary sacrifice would need to be added to the P11d return (or taxed through payroll). This would negate any tax saving for the employee and the employer would pay National Insurance. Examples of benefits that would be affected include Health Screening, Car Parking, Mobile Phones and non-core Life Assurance.
Where the benefit is not tax free but the salary sacrifice has previously been tax-advantageous, due to a reduced benefit in kind figure, a value equivalent to the salary sacrifice (as opposed to the benefit in kind value) would be added to the P11d return (or taxed through payroll). This negates any tax saving for the employee and negates any National Insurance saving for the employer. Examples of benefits affected in this way include salary sacrifice Cars and Technology schemes.
The legislation would apply to both salary sacrifice schemes and to flexible benefit propositions, where deductions can be made from benefit allowances.
Importantly, salary sacrifice can continue for all schemes, and employees will still benefit from Employee National Insurance savings (12% or 2%, depending on earnings). The very popular holiday trading schemes are also unaffected and can carry on as before.
Commenting on the content of the consultation, Philip Curtis, Fair Care MD stated “Salary sacrifice has been in HMRC’s sights for a while now, so we are not surprised by the proposals. Whilst some tax savings will disappear on the more peripheral benefits, the core salary sacrifice schemes will be unaffected. The appeal of flexible benefits as a whole will continue to grow unabated - employees will still enjoy discounted corporate rates on medical and insurance products and will continue to have access to convenient payment plans for certain goods and services.”