Salary Sacrifice Update
The draft legislation relating to the Finance Bill 2017 has brought clarity as to how Government will change the tax treatment of certain salary sacrifice schemes. The legislation will take effect from April 2017. In general, schemes entered into prior to April 2017 will be protected for 12 months.
1.Salary sacrifice schemes where the benefit is currently offered tax-free, that will become taxable, include:
- Health Screening
- Workplace Parking
- Mobile Phones
(For these schemes, it is proposed that a value equivalent to the salary sacrificed will need to be added to the P11d return (or taxed through payroll). This will negate any income tax saving for the employee, and the employer will pay National Insurance.)
2.Tax savings will be negated for salary sacrifice schemes where the benefit is not tax-free but benefits from a tax advantage (where savings from salary sacrifice exceed the tax paid on the benefit in kind). These schemes include:
- Car schemes (excluding ULEVs)
- Technology/Audio Visual schemes
(For these schemes, it is proposed that a value equivalent to the salary sacrifice (as opposed to the benefit in kind value) will 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.)
Significantly, the tax-free salary sacrifice schemes that will not be affected are listed as follows:
- Employer pension contributions
- Employer-provided pension advice
- Group Life Assurance (DIS)
- Employer-supported childcare (childcare vouchers and workplace nurseries)
- Cycle to Work
- Ultra Low Emisson Vehicles (ULEV)
Also, there will be no changes for salary sacrifice schemes for certain taxable benefits such as Private Medical Insurance and Critical Illness Insurance, where income tax and employer’s National Insurance is already payable at full value through a P11d return (or taxed through payroll). Employee National Insurance continues to be the only saving.
POINTS TO NOTE:
- The legislation will apply to both salary sacrifice schemes and to flexible benefit propositions, where deductions can be made from benefit allowances. There is, however, no change proposed for the tax treatment of any benefit that is provided as a core benefit, without any cost to the employee.
- Importantly, salary sacrifice can continue for all schemes, and employees will still benefit from Employee National Insurance savings (currently 12% or 2%, depending on earnings) on all schemes, even if income tax savings are negated.
- The very popular holiday trading schemes are also unaffected and can carry on as before.