Salary Sacrifice Scheme changes – Are you ready?
The Chancellor Philip Hammond announced in the Autumn Statement 2016 that Salary sacrifice perks will be cut back. These will start to come into effect from 5th April 2017.
How will this affect your employees?
Most schemes which are currently tax-free will soon be taxed. So, employees will have to pay the same tax on what they put into these schemes as they would on any other income, and employers will have to pay the same NI. (Employees still won’t have to pay NI on this though, so may get to keep some of the benefit).
Which salary sacrifice schemes are having their tax perks axed?
Here are some examples of schemes losing perks because of the changes:
- Company cars (unless they’re ultra-low emission vehicles)
- Work-related training
- Car parking near your workplace
- Health screening checks
- Mobile phones, computers and other tech
- Gym membership
- School fees
Which salary sacrifice schemes will remain?
The following schemes are exempted from the and so will continue to offer tax perks from April 2017:
- Pension contributions
- Cycle-to-work schemes
- Ultra-low emission cars
If you’re already on a soon-to-be-axed scheme or sign up by 4 April, you keep the perks for a while. Most schemes stay tax-free until April 2018 – those relating to cars, accommodation or school fees until April 2021.
What do I need to consider as an employer?
If you have salary sacrifice arrangements in place before 5 April 2017 your employees will continue to enjoy their tax-exempt status until at least April 2018 – and existing arrangements for cars, accommodation and school fees will be tax-free until April 2021.
If your employees are not already on one of these schemes, and if they act quick, they may be able to opt in now and enjoy the tax benefits for either a further year or further four years.
Remember that schemes which lose their tax perks will keep their employee NI perks, so they will still save 12% (basic-rate taxpayers) or 2% (additional and higher-rate taxpayers) by paying through salary sacrifice.
However some employers may stop offering schemes that are losing their tax exemptions, if they no longer consider it worth their while.