Government moves to curb salary sacrifice

Business News News

Ahead of the 2016 Autumn Statement there were rumours that the Chancellor Philip Hammond might limit the perks offered to employees by their employers.

However, it soon became clear that he was out to prevent any tax advantage from salary sacrifice schemes when he announced that from April 2017 any tax and employer national insurance contribution (NICs) advantages of such schemes would be abolished, with the exception of arrangements relating to pensions and pensions advice, childcare, Cycle to Work schemes and ultra-low emission vehicles (ULEVs).

This will mean that from April 2017 employees sacrificing part of their salary in return for benefits, such as gym membership, school fees or a work mobile phone, will pay the same amount of tax as those who buy them out of their post-tax income.

As a slight concession all arrangements in place before April 2017 will be protected until April 2018 and those currently in receipt of payments for school fees, accommodation or a car will be protected until April 2021.

The new rules will apply to all non-exempt salary sacrifice schemes even cases where an employer offers employees a choice between a benefit and a cash alternative, even if the benefit is not wanted.

The tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.

Matt Dyer, managing director at LeasePlan said the move was “both destructive and disappointing for the motoring industry”.

“We must also remember that going forward, HMRC has been clear that it will make no distinction between salary sacrifice and the practice of offering a cash allowance in lieu of a company car, meaning this could affect up to 600,000 drivers,” added Dyer.

Colin Tourick, professor of automotive management at the University of Buckingham business school, added: “People already sacrificing salary will continue to enjoy the benefits for four years. We can expect a huge rush in salary sacrifice registrations between now and 5 April, when the new rules come into force.”

Link: Autumn Statement Summary

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