New HMRC Consultation on limiting salary sacrifice advantages for benefits in kind
HMRC has published a consultation document on limiting the range of employee non-cash "benefits-in-kind" that can attract Income Tax and National Insurance Contributions ("NICs") advantages when provided as part of salary sacrifice arrangements (see here). This follows concerns, restated at the 2016 Budget, that the growth in the use of such arrangements in recent years has led to the Exchequer bearing disproportionate costs (due to its loss of tax and NICs), artificial inflation of entitlements to tax credits/Universal credit and an uneven playing field for employees since sophisticated businesses generally offer more extensive salary sacrifice programmes.
As such, the government proposes to change tax legislation so that benefits in kind provided through salary sacrifice will, as a general rule, become chargeable to income tax and employer NICs at the greater of the amount of salary sacrificed and the cash equivalent set out in statute (if any). This will be the case regardless of whether the benefit of kind is otherwise taxable or exempt. This is planned to come into effect in April 2017 as part of the Finance Bill 2017.
The consultation document confirms that this general rule will not apply to certain benefits in kind, which the government is keen to promote. This means that employer pension contributions; employer provided pension advice; employer supported childcare and the provision of workplace nurseries; and cycles and cyclist's safety equipment provided in accordance with the "cycle to work" scheme may still be provided using the current arrangements. The changes will also not affect circumstances where salary is sacrificed in return for intangible benefits, such as extra annual leave or flexible working hours, or where Payroll Giving is implemented.
Despite the carve out, the proposed changes could have a significant impact on employers and employees engaged in salary sacrifice "growth areas", such as the provision of company cars, life insurance and assets such as mobile phones, TVs, Computers and white goods. We would suggest that clients concerned about future tax exposure under such schemes, or the workforce response should these be removed or curtailed, should engage with the consultation before the deadline of 19 October 2016. Details of how to respond to the proposals can be found here.
This article is part of our Employment Law Update for September 2016
