Many employers remain unaware of the change in rules covering flexible benefits and salary sacrifice, or cash alternative arrangements from 6 April 2017. With many questions unanswered, correct filing of 2017-2018 P11Ds is going to be difficult.
Under the new rules, where a benefit is selected, a tax and national insurance charge arises on the higher of the amount of salary foregone or the modified cash equivalent of the benefit, which is the amount under the normal benefit rules. The new rules introduced the concept of type A and type B arrangements from 6 April 2017, whereby type A refers to salary sacrifice arrangements and type B is where the employee is given a choice between taking a benefit or taking a cash alternative.
The new rules apply to arrangements regardless of whether the arrangements are entered into before or after the beginning of the person’s employment.
For employees who have been offered an arrangement since 6 April 2017, they are automatically included in the new rules, where they have flexible benefits, salary sacrifice or cash alternative arrangements other than for an exempt item, such as sacrifice into an approved pension scheme or for childcare vouchers.
For employees who were locked into arrangements prior to 6 April 2017, the legislation includes grandfathering provisions.
For most arrangements entered into before 6 April 2017, even if the arrangements take full effect after 6 April 2017, the restriction applies from 6 April 2018 unless the arrangement is ended, varied or renewed before then. However, for cars, living accommodation and school fees, the restriction applies from 6 April 2021, unless the arrangement is ended, varied or renewed before then.
Different treatments will apply to different employees of the same employer depending on a number of factors, such as their date of employment.
Employers need to consider the impact of the new legislation now, in light of any arrangements they offer employees. Their focus should be on tracking arrangements per employee to determine when optional remuneration arrangement legislation applies, for example at the start of employment or at annual renewal; tracking that any changes an organisation makes part way through the year are covered by the transitional rules calculating the reportable amount; checking that systems and processes are capable of supporting the required calculations; undertaking employee communications where necessary and reviewing HM Revenue and Customs (HMRC) guidance. If uncertainty remains, employers should seek specialist advice.
Susan Ball is partner, head of employers advisory services at accountancy firm Crowe Clark Whitehill