Is This The End of Salary Sacrifice Schemes?

Is This The End of Salary Sacrifice Schemes?

1 March 2017

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With the new tax year fast approaching, there is bad news for employees who participate in salary sacrifice schemes, as the government is planning a tax raid from April onwards.

From next month, tax and National Insurance will become payable on many salary sacrifice benefits, potentially affecting millions of employees across the country.

It may well make many workers and employers alike reconsider such schemes, as they may no longer be financially desirable.

Salary sacrifice schemes originally referred to a proportion of an employee’s wages being put towards their pension. Nowadays, modern benefits packages include childcare vouchers, parking discounts and cycle to work incentives. Even socially beneficial schemes – such as discounted gym memberships – will be affected.

Critics of the schemes have often labelled them as tax dodging exercises.

If you are already taking part in an existing scheme, there will be a year’s grace period on added tax, but eventually it will lead to a noticeable reduction in wages. For those schemes that offer help with cars, accommodation or school fees, the grace period will be extended until 2021.

Employers will need to review their existing schemes, rethink any potential new benefits and adjust their payroll accordingly. There have been serious concerns raised that many firms and employees may face a sudden, dramatic change in their financial circumstances when they are taxed in full on the value of these benefits.

Industry professionals are urging employers to review their salary sacrifice schemes and consider whether or not they will remain financially viable in light of the new laws. This new taxation regime will incur more costs for firms, owing to the additional reporting requirements from PAYE forms.

HMRC have calculated that the additional taxation – as promised by Phillip Hammond in the Autumn 2016 Statement – will raise a further £85 million in taxes for the 2017 – 2018 financial year. This will then increase dramatically to £235 million the following year and £260 million by the 2021 – 2022 financial year.

The government have pointed out that many employees will see their salary ‘even itself out’, as it were, under the new personal allowance rate. However, in Scotland, the rate of income tax has risen for middle earners (whereas it remains unchanged in the rest of the UK), posing a potential issue for middle-income families.

However, some benefits will prove exempt from additional taxation. Pensions, childcare vouchers and cycle to work schemes will not be subject to taxation under the new ruling. There has been some outcry that access to health screenings will not be exempt.

Whilst it is fair to say that the government have chosen to crack down on salary sacrifice schemes after a number of high-profile tax avoidance scams, this new ruling will cause serious problems for employers who offer benefits packages to motivate their workforce.

 

 

 

Written By Mary Palmer

Comments

This is ridiculous. They should introduce this for higher earners only.
Posted on Sunday, March 05, 2017 21:22 by Laura Brown

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