Government aims to limit tax savings from benefits-in-kind

[fusion_builder_container background_color=”” background_image=”” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ background_repeat=”no-repeat” background_position=”left top” video_url=”” video_aspect_ratio=”16:9″ video_webm=”” video_mp4=”” video_ogv=”” video_preview_image=”” overlay_color=”” overlay_opacity=”0.5″ video_mute=”yes” video_loop=”yes” fade=”no” border_size=”0px” border_color=”” border_style=”” padding_top=”20″ padding_bottom=”20″ padding_left=”” padding_right=”” hundred_percent=”no” equal_height_columns=”no” hide_on_mobile=”no” menu_anchor=”” class=”” id=””][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]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  this week, 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.

What is likely to change?
Tax benefits will be removed on life insurance and mobile phones offered to staff via salary sacrifice, as well as on schemes that encourage individuals to buy white goods through their payroll, effectively operating as interest-free loans.
The fleet car industry is concerned that company vehicles could become a “target” for the taxman and fears that the provision of company cars could be curtailed. Matthew Walters, head of consultancy services at LeasePlan UK, said HMRC appeared to be ignoring the fact that company cars were already subject to additional taxation, and that there is a risk of two company car drivers who drive the same car being treated differently, simply because one driver is making a contribution to the cost of the car through gross salary. He also raised concerns about whether the April 2017 date for introducing new arrangements was logistically feasible for employers.

What is not likely to change?
Tax arrangements surrounding employer pension contributions (by far 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 – for example, when salary is exchanged for extra annual leave or flexible working hours. Payroll giving to charities will not be affected.

How will things change?
The government is proposing a change to tax legislation 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.

HMRC said the proposals did not prevent employers from providing benefits to their employees through salary sacrifice, but would remove the tax and national insurance advantages that come from doing so.

What impact might these changes have?
The potential changes could mean organisations will rethink the strategies behind the benefits they offer. Under these plans, employers will continue to have to pay the administration costs of their schemes, but will not get the 13.8 per cent national insurance saving. Many employers will therefore be tempted to remove or reduce the salary sacrifice options available in future. They will have to balance this against the tensions this could cause with employees.

Watch this space for an update when the outcomes of the consultation are published.

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