This site uses cookies to improve your browsing experience and analyse use of our website. By clicking ‘I accept’ you agree and consent to our use of cookies. You can find out more about our cookies here. Find out more

Autumn Statement: Salary sacrifice schemes under attack

Tim Woodgates

One of the more significant announcements in the Autumn Statement was the government’s scrapping of tax benefits under certain salary sacrifice arrangements from April 2017.

Employees have hitherto been able to sacrifice an element of their salary in exchange for a non-cash benefit.  The benefits typically provided in these arrangements have expanded in recent times, which appear to have prompted these tax changes. 

These benefits include:
  • mobile phones
  • private healthcare
  • company cars
  • gym memberships
  • car parking spaces
  • electronic goods such as televisions, gaming consoles, etc.
The important tax implication of this arrangement is that as a result of the salary being sacrificed, the amount of income tax and National Insurance payable is reduced.

What’s changing?
The government has targeted this as an area it sees where tax is being avoided.  From April 2017, income tax and National Insurance will be due on the value of the sacrificed salary as if it was “normal” cash income.

Salary sacrifice arrangements made before April 2017 will be protected from the changes until April 2018 (or up to 2021 for arrangements involving cars, accommodation and school fees) so there will be a short respite before the effects of these tax changes come into fruition.

What is unchanged?
It is important to note that some salary sacrifice arrangements will continue to enjoy the tax breaks that have been offered historically such as pension contributions, provision of childcare vouchers, cycle to work schemes, and provision of ultra-low emission cars.  Furthermore, any instances where salary is sacrificed for additional holiday entitlements of flexible working hours will not be affected.

What will the effect be?
For employers and employees who are party to arrangements that have been targeted, income tax and National Insurance will be payable on the value of the benefits provided from April 2017.

With the tax benefits of many perks offered by employers being lost, employees face the challenge of having a smaller take home pay.  Coupled with inflation rises expected in the coming years, it is anticipated pressure on employers to increase wages to compensate will increase and pose a real challenge. 

The incentives for many salary sacrifice schemes will remain.  For many employers and employees, agreeing to exchange currently “unfavourable” benefits for ones that will still enjoy tax breaks would seem to be an advisable course of action and mitigate against the negative consequences of these tax changes.