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Clampdown on salary sacrifice perks

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23/11/2016
Chancellor Philip Hammond has announced a clampdown on some salary sacrifice schemes from April 2017.

Salary sacrifice schemes are when employees get a lower salary in return for a benefit or perk such as a mobile phone, company car or car parking space. As a result, the employee pays less income tax and both worker and employer pay less national insurance.

The Chancellor said such arrangements will now only benefit from a saving on employee national insurance, with the tax and employer national insurance benefits being taken away.

Pension contributions, childcare, cycle to work schemes and ultra-low car emissions will be exempt from the rule changes.

Arrangements for cars, accommodation and school fees will be protected until April 2021.

“The majority of employees pay tax on a cash salary. But some are able to sacrifice salary and pay much lower tax on benefits in kind,” Hammond said.

“This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.”

Rutherford Wilkinson, operations director at financial planning firm Trevor Clark, said: “Whilst the Chancellor has announced restrictions to the usage of salary sacrifice, the core schemes of pension contributions, child care and cycle to work have survived which is positive, not negative, news. These are key benefits that can truly make a difference to someone’s life, and at the same time save on both the employees’ and employer’s National Insurance bill.

“Surely it was never the intention of any government to allow tax relief on excessive benefits in kind provided by employers and this just mops that up without withdrawing its use for the more important schemes which was threatened at one stage.”

Nathan Long, workplace savings & benefits consultant at Hargreaves Lansdown, said: “Anyone accessing workplace benefits other than for pension, childcare vouchers, cycle to work and low emission cars should consult their employer in the weeks to come to see how they are impacted.”

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