Salary sacrifice update – HMRC consultation update

28 November 2016

In our previous newsletter, we provided details of HMRC's consultation on salary sacrifice. HRMC is now analysing the feedback to announce any changes in the 2016 Autumn Statement. Are you confident your salary sacrifice schemes arrangements are correctly structured?

The Autumn Statement announced that the government intends to implement the proposed changes to salary sacrifice arrangements outlined in the May 2016 consultation document.

Therefore, with effect from April 2017, any new relevant benefits provided through salary sacrifice will be chargeable to income tax and class 1A employer national insurance (NICs). The benefits that will not be affected by the changes are pensions, cycle to work schemes, ultra-low emission car lease schemes and employer-supported childcare (childcare vouchers, directly-contracted childcare and workplace nurseries).

Although the changes will be effective from April 2017, all salary sacrifice arrangements in place before April 2017 will be protected until April 2018, and arrangements in place before April 2017 for longer term benefits such as cars, accommodation and school fees will be protected until April 2021. This is good news and will enable employees and employers to continue to benefit from savings on arrangements in place when the new rules come into force.

What should you be doing?

Pre April 17 

Consider and introduce new benefits to ensure that the tax and employer’s NICs benefit is preserved until April 2018 for short term benefits, and until 2020/21, for cars, accommodation and other longer term benefits

Post April 17

Review your current benefit offerings, consider the options and decide your approach. The options to consider could be:

  • continue to provide a benefit through salary sacrifice;
  • provide the benefit through a net deduction arrangement; or
  • cease the provision of the benefit entirely.

Develop an action plan to: 

  • review scheme documents and terms and conditions to ensure all schemes are compliant with the new legislation;
  • consider and determine arrangements for a salary sacrifice exit process; and
  • draft deduction arrangement documentation and terms. 

Develop a communication plan to inform employees of the changes. Review contracts with employee benefits providers and quantify the short-term and long-term cost implications.