How will the limits on salary sacrifice tax advantages impact benefits strategies?


In the Autumn Statement 2016 presented on 23 November, Chancellor Philip Hammond confirmed that the government will limit the range of benefits that attract tax advantages when offered through a salary sacrifice arrangement.

The announcement followed a government consultation, which ran from 10 August to 19 October 2016. Following the Autumn Statement, draft legislation was published on 5 December, with final legislation due to be introduced in the Finance Bill 2017.

From 6 April 2017, the government will limit the income tax and employer national insurance contribution (NIC) advantages where benefits are offered through a salary sacrifice arrangement or where the employee is provided with a choice between a benefit in kind (BIK) and cash allowance.

From this date, the taxable value of BIKs where cash has been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone.

Arrangements in place before 6 April 2017 will be protected until 6 April 2018, or when the contract comes to an end, comes up for renewal or undergoes modification, whichever is the earlier. Arrangements for cars, accommodation and school fees will be protected until 6 April 2021.

Some benefits are exempt from the changes, including pensions and pensions advice, childcare, bikes-for-work schemes, and ultra-low emission cars (ULEVs).

The potential repercussions of these changes have been resonating around the benefits sector for some time. The government’s confirmation of the move, however, has evoked mixed reactions from the industry. While some sectors of the industry are understandably concerned about the change, others have seen a more positive side.

One underlying theme that has emerged, for example, is the need for innovation.

Without tax advantages, gaining group discounts will now become more important, said John Harding, employment tax partner at Pricewaterhouse Coopers (PWC). He also expects the car provider market to increase its focus on ULEVs.

The changes will likely lead to an increase in voluntary benefit arrangements.

Employers looking to retain savings advantages could do so through benefits such as pensions salary sacrifice, holiday purchase schemes, and ULEVs, said Mark Groom, partner at Deloitte. This is particularly relevant for employers that currently use the employer NI savings made from providing benefits via salary sacrifice to help cover the costs of other benefits offerings, for example, a flexible benefits platform.

Harding said: “Any employer that has a flex scheme going live, renewing or relaunching prior to April should take advice because it will need to decide whether the arrangements [it is] putting in place will be compliant under the new regime and what, if any, communications it needs to provide to employees about those likely changes.”