NEWS

Salary Sacrifice Schemes Clamp Down

From 6 April 2017 the government will significantly limit the range of benefits that attract tax and employer national insurance advantages when offered through a salary sacrifice arrangement.

Under salary sacrifice the employee gives up an amount of cash salary in return for a benefit in kind.  Where the benefit is exempt from tax and  national insurance the employee saves the tax and primary Class 1 National Insurance that would otherwise be payable on the cash salary and the employer saves the associated secondary Class 1 National Insurance.

Whilst the majority of employees pay tax on a cash salary, some are able to sacrifice salary and pay much lower tax on benefits in kind.  The government is now taking action to reduce the difference between the treatment of cash earning and benefits so employers and employees who use these schemes will pay the same taxes as everyone else.

From this April, where a benefit is provided under a salary sacrifice arrangement or where a cash alternative to the benefit is offered, any associated tax and National Insurance exemption is lost.  Instead, the employee will be taxed on the cash forgone or the amount of the cash alternative where this is higher than the cash equivalent of the benefit.

Certain benefits will be exempt from the changes – pensions and pension advice, childcare, bike-for-work schemes, and ultra-low emission vehicles (ULEVs).

Existing arrangements in place on 5 April 2017 are protected for one year until 5 April 2018. Arrangement for cars, accommodation and school fees will be protected until 5 April 2021.

10/01/2017