Salary Sacrifice Arrangements
Following a recent consultation, HMRC have confirmed that they will legislate to remove the tax and national insurance benefits from salary sacrifice and flexible benefit schemes.
Under a salary sacrifice arrangement an employee can swap part of their salary for benefits – usually saving tax and/or national insurance contributions. The arrangement has to be put in place by way of amendment to the employee’s contract and cannot be reversed at will to avoid an argument that the benefit can be turned into cash – although, under the current rules, some benefits such as pension contributions, childcare and workplace parking would remain exempt anyway.
An alternative arrangement is a flexible benefits scheme; this is similar to the salary sacrifice and provides employees with a choice of benefits as an additional part of their remuneration package. The budget note states that these schemes will not be caught so long as there is no option to turn the benefits into cash. Care must be taken to ensure that this contractual benefit can only be amended under limited circumstances, again so there is no argument that the benefits can be swapped for cash.
The provision of specific benefits in addition to the cash salary – that is not by way of salary sacrifice or a flexible benefit arrangement – will not be affected.
The budget note confirms that various exempt benefits: the cycle to work scheme, childcare and pensions will not be affected by the changes and arrangements for cars, accommodation and school fees will be protected until April 2021.
All arrangements in place before April 2017 will be protected until April 2018- there is one year left to utilise such arrangements!
For more information, please contact Anne Irvine.