New HMRC proposals attack salary sacrifice for benefits in kind
In last year’s summer Budget, HMRC voiced its concern about the rise of salary sacrifice schemes in recent years. It went further in the recent March Budget to confirm that it would look to limit the range of benefits in kind (BIKs) that attract tax and National Insurance Contribution (NIC) savings. HMRC have clearly been busy over the summer months as just last week they issued a number of consultation documents, one of which now outlines their approach to tackling salary sacrifice arrangements that involve BIKs.
The consultation document puts forward HMRC’s reasons for making changes, and looks to explore the potential impact on employers and employees should the government decide to implement its plans. It gives examples of what HMRC clearly believe are some of the main culprits – non-taxable benefits (e.g. company mobile phones and workplace parking) being provided to employees in return for a reduction in their gross salary, achieving both Income Tax and NIC savings.
HMRC proposes to bring in new rules effective from 6th April 2017 to subject any BIKs provided by way of salary sacrifice to both Income Tax and Employer’s Class 1A NIC (even if it is normally exempt from tax and NIC) at the greater of:
- the amount of salary sacrificed; and
- the BIK cash equivalent/P11D value (if any)
In recent years, there has been a growth in low emission company cars being purchased for employees via salary sacrifice schemes, and these schemes will undoubtedly be hit hard. Many comment that these proposed changes conflict somewhat with the government’s aim to encourage low emission cars through tax incentives. Affording cleaner, low emission cars is often only possible for some employees thanks to the availability of such salary sacrifice schemes.
HMRC have confirmed that certain benefits will remain exempt from tax and NIC, making good on their promise to protect these in the recent Budget:
- Employer pension contributions
- Employer-provided pensions advice
- Employer-supported childcare (including childcare vouchers)
- Cycles and cycling equipment (that qualifies under the cycle-to-work rules)
The consultation period ends on 19th October 2016, so it remains to be seen whether any changes may be made before April 2017.
If you believe you may be affected by these proposals, please get in touch using the form below. Or by contacting firstname.lastname@example.org.