From 6th April 2017 only the following exempt benefits (e.g. pensions, pensions advice, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to work or cars with emissions of, or under, 75 g CO2 / km) enjoy tax and NIC savings if the salary sacrifice element of the flexible benefit package is documented correctly.From 6 April 2017, all other benefits provided in conjunction with salary sacrifice (even tax-exempt ones like mobile phones) would be subject to the following new rules: Where an employee enters into a salary sacrifice for a non-exempt category after 5 April 2017 the tax and Class 1A NIC charge will be based in the greater of :
- The amount of the salary that has been sacrificed, or
- The existing benefit-in-kind value
A new term, “Optional Remuneration” has been defined where an employee is offered in their contract a cash alternative to a benefit such as a company car. Such arrangements will also be caught under the new rules.
HMRC review salary sacrifice schemes as part of their PAYE audits to check that they are being operated as described at the time approval is obtained. Many employers simply fail to get the basics right; including ensuring that any salary sacrifice is effective in the first place, that any desired tax exemptions are properly due, or that a fully effective (i.e. cards face up on the table) agreement with HMRC is achieved. Others fail to provide effective communications to staff (including badly designed payslips), resulting in general confusion and limited employee take up. There may be significant tax and NIC penalties to be imposed if the scheme has not been designed properly (e.g. following ineffective ‘cut and paste’ principles) or has strayed from the original design. Our consultants can perform high level reviews of existing schemes to ensure that they are tax compliant and can offer advice to try to prevent the Optional Remuneration rules from coming into play.
- How safe are your salary sacrifice schemes?
- Points to consider when implementing a salary sacrifice scheme
- How to make your salary sacrifice arrangements effective
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