Salary sacrifice

Earlier this year there was a consultation on salary sacrifice arrangements, where employees agree to a reduced salary so as to receive other benefits instead but critics are concerned that the proposals go further than this and are intended to apply wherever a benefit has been obtained instead of cash.

This week, Chancellor Philip Hammond said that changes to the employment tax system are needed to ensure that the UK tax base is “sustainable’ and said he would remove the tax advantages of certain salary sacrifice schemes ahead of a wider review of employment tax.

The changes will come into force in April next year, although certain long-term arrangements will be protected until April 2021. Meanwhile salary sacrifice schemes for ultra-low emission cars, pensions saving and childcare will be exempt from the changes.

HM Revenue & Customs (HMRC) is concerned at the growing “abuse” of salary sacrifice and flexible benefits so is proposing that the higher of the taxable benefit and the salary sacrifice/cash allowance is used as the taxable value.

For example, in the case of a company car, if the tax value based on CO2 emissions is £3,000 but an employer also offers a £5,000 cash alternative, tax will be due on £5,000 rather than on £3,000.

Mr Hammond also confirmed a number of changes to employment tax, which were announced in this year’s Budget. These include requiring the payment of employer National Insurance Contributions (NICs) in the same way as income tax on termination payments over £30,000, and shifting the responsibility for compliance with the off-payroll working rules in the public sector to the organisation engaging that individual through a personal services company (PSC).