HMRC to continue with salary sacrifice changes

Employers will be disappointed that there is no further guidance in relation to the proposed changes to salary sacrifice.

The Spring Budget has confirmed that reforms are set to come in for Optional Remuneration Arrangements (salary sacrifice) from April 2017, removing the Income Tax and National Insurance (NI) advantages of such arrangements. 

The draft legislation published in December 2016 for arrangements entered into before 6 April 2017 will continue to enjoy savings until the earlier of a variation, renewal of the contract or 6 April 2018. From this point, there will be a reportable benefit in kind (BIK) under the new regime at the higher of:

  • the taxable benefit amount; or 
  • the cash alternative or amount forgone.

The BIK will be taxable on the employee and Class 1A NIC due from the employer.

For many employees and employers there has been little time to prepare for the change. However, the government have provided for some arrangements which are excluded from this measure. They are:

  • employer provided pensions and pension advice; 
  • childcare vouchers, employer provided childcare and workplace nurseries; 
  • cycle to work schemes; and 
  • ultra-low emissions cars, with emissions not exceeding 75g CO2 per kilometre.

The Spring Budget referred to protecting specific arrangements which include: 

  • cars with emissions above 75g CO2 per kilometre; and
  • accommodation and school fees until April 2021. 

However, it failed to address concerns that the draft legislation only protects these arrangements until they are varied or renewed. 
More government guidance was expected in light of the public response to the grandfathering rules and what constitutes a variation or renewed arrangement  Independent schools in particular will be disappointed that there hasn’t yet been further clarification on the transitional rules for school  fees. 

With the changes fast approaching and the Finance Bill 2017 to be published on 20 March 2017, it leaves little time for employers to prepare.

For more information please get in touch with Graham Farquhar, or your usual RSM contact.