In August 2016, HMRC published a consultation document looking at the ever expanding Salary Sacrifice market and suggesting some significant amendments to what an employee can sacrifice through the payroll.
As with most consultation documents, HMRC asked for comments and representations, thanked all participants and have announced, without amendment, the proposals in the document.
So, what has changed and can a salary sacrifice still be used effectively by employees to fund certain benefits? Documents released by HMRC, following the Autumn Statement, have confirmed that the following can still be sacrificed effectively without any tax and National Insurance Contribution (NIC) consequences:
- Pension Contributions
- Employer funded pension advice
- Childcare provision
- Cycle to work scheme
- Ultra-low emission cars (CO2 emissions up to 75g/km)
So a salary sacrifice remains the most tax and NIC efficient method for an employee to save for retirement. However from April 2017all other salary sacrifice schemes will be subject to the same tax as cash income. These include:
- Company Cars
- School Fees
- Car parking
- Mobile telephones
All arrangements in place before April 2017 will be protected for a year. So the benefit of a salary sacrifice that is not protected will cease to exist from 6 April 2018.
However a word of caution, if an existing salary sacrifice is amended in any way, prior to April 2018, it will be subject to the same tax as cash income immediately. It will lose it’s tax and NIC advantage.
Arrangements that have been set in place that are more long terms, for instance cars, school fees and accommodation will be protected for up to 4 years (up to 5 April 2021).
This is a lucrative and complex area, hence HMRC’s desire to reign in the benefits that can be sacrificed. For more information please contact Ben Fearn or Paul Chappell.