Government to sacrifice salary sacrifice

Wednesday February 8, 2017

Millions of workers are set to lose the tax perks associated with their salary sacrifice schemes over the next two years. Chancellor Philip Hammond is redrawing the boundaries of what can and can’t be offered tax free under the salary sacrifice scheme.

However, act quickly and you could protect some schemes for another twelve months, or, in some cases, even another four years! Before 6th April 2017 you can protect any arrangements in place until April 2018. Salary sacrifice schemes on cars, accommodation and school fees could be protected until April 2021.

Let us explain this, and how it could affect you.

Using the current salary sacrifice system, employees don’t have to pay tax on certain benefits, such as mobile phones, health checks etc. Meanwhile, employers fork out less National Insurance on the lower wage (after all salary sacrifice deductions are taken). Win-win then?

Maybe so, but the Treasury loses out in lost tax revenue.

The changes then, what do they mean? Well the headline is that some of the most popular tax-free benefits will lose that tax-free status.

However, some salary sacrifice benefits are exempt from the changes (ultra-emission vehicles, pensions, childcare vouchers and cycle-to-work schemes). Is it time to introduce some of these into your workplace?

Your first job is to familiarise yourself with the new rules. They’ll impact each and every business and its employees differently. Then work out if the changes will affect you. If your employees are only using salary sacrifice for those exempt schemes, keep doing what you’re doing!

If not, then you can keep offering those additional perks via salary sacrifice, just make sure they are taxed. There are some changes you’ll have to make to your payroll.

Dates are important here. From April 2017, the tax perk aspect of these schemes will be scrapped. However, as mentioned if you get yours in place before April 2017 it’ll be protected until April 2018! Worth considering.

Make sure your staff know well in advance about the changes and how their pay packets will be affected. And it may be worth taking this opportunity to re-examine your benefit offering?

Unsure whether these changes apply to you? The HR Dept is here to help.

 

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