Changes to Salary Sacrifice Schemes

Changes to Salary Sacrifice Schemes

3 April 2017

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Last month, there were plenty of reports circulating that the government was planning something of a ‘tax raid’ on salary sacrifice schemes.

In such schemes, employees exchange some of their pay for a non-cash benefit, such as parking discounts or gym memberships. The employer and employee both make a tax saving because the benefit is taxed less than the equivalent amount of salary, or not taxed at all. 

As of April 1, tax and National Insurance will become payable on many salary sacrifice benefits, potentially affecting millions of employees across the country.

The Chancellor Phillip Hammond proposed this overhaul in a bid to halt “unfair” salary sacrifice schemes. It was feared that this would result in thousands of employees being worse off under the new taxation ruling.

HMRC have calculated that the additional taxation 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.

Now, however, it would seem that things are not as bad as initially anticipated as certain elements of the salary sacrifice scheme have been protected (at least in the short-term).

But what does the new scheme mean for employees? And what should employers be doing to ensure they are up to speed with the changes, and to ensure employees still get a good deal? After all, employee perks and benefits such as these schemes are often what attract candidates to jobs.

There will be some notable exceptions to the change in taxation such as ultra-low emission cars, pension savings, childcare, and the cycle to work scheme. All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.

If employers are faced with making changes to salary sacrifice schemes, it is absolutely crucial to communicate these to members of staff who will be affected.

Employee benefits are adaptable to change, and the answer is to work with staff to come up with the best solution. For instance, if appropriate substitutes (such as flexitime) provided the answer, these should seriously be contemplated by business owners hoping to retain their staff.

The most important thing is to work with your employees to tailor an alternative and to keep them in the loop as to what any changes may mean for them.

Many taxation analysts have argued that, in most cases, employers and employees will want to continue using salary sacrifice schemes, as the cost increases will not be so significant as to impact standard of living or ability to get to work.

Larger companies will also be able to use their size as a bargaining tool to ensure their employees still have access to particular deals, products or savings.

Have the changes to salary sacrifice schemes affected your workforce? Talk to one our knowledgeable recruiters today about securing and retaining staff.

 

 

 

 

Written By Mary Palmer

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