The Autumn Statement confirmed plans to limit the scope for salary sacrifice arrangements.
In recent years, the number of employers offering ‘cafeteria’ remuneration has steadily increased. Under the system, employees can swap pay for benefits, which can range from anything from mobile phones through to company cars or gym membership.
The advantage of visiting the cafeteria depends on what is chosen from the menu. In some instances – mobile phones for example – pay that is subject to income tax and employees’ and employer’s national insurance contributions (NICs) becomes a benefit free of both tax and NICs.
The party on the other side of this disappearing trick, HM Treasury, has now decided enough is enough. Over the summer, HM Revenue & Customs issued a consultation paper on countering the effects of salary sacrifice and the Autumn Statement confirmed that most of the proposals in the document will take effect from 6 April 2017. Broadly speaking, if you give up salary for a benefit, then from 2017/18 you will be taxed on the greater of:
- the salary foregone; and
- the statutory value of the benefits
Your employer will also be subject to NICs on the same basis, so the only saving remaining will be employee NICs, which for higher rate taxpayers is generally 2% of the earnings sacrificed.
There will be a range of transitional protection for arrangements in place before April 2017 and a limited number of total exemptions. The most important of these is for pensions, where the gain from using salary sacrifice can be as much as 33.9%. If you would like to learn more about the continuing advantages of this type of salary sacrifice arrangement, please talk to us.