As expected, the government has implemented changes in salary sacrifice arrangements. This is one of the biggest changes for employers, removing income tax and National Insurance advantages which have long been enjoyed by such arrangements.
As stated by the Chancellor, arrangements are considered to be unfair and employers and employees who use these schemes will pay the same taxes as everyone else. This will mean that employees reducing salary in exchange for non-cash benefits will pay the same income tax as the vast majority of individuals whom contribute towards the benefit through their net salary.
There is some good news for employers and employees. Following on from the consultations, the government has listened to the responses from stakeholders and made amendments to their original proposals.
The new plans state that arrangements relating to pensions (including advice), childcare, cycle to work and ultralow emission cars (those that produce less than 75g of carbon dioxide) will not be affected.
Arrangements in place by April 2017 and not included in the exempt areas above will be protected up until April 2018.
However, there will be grandfathering for specific arrangements; cars, accommodation and school fees. These types of arrangements will be protected until April 2021.
Employers should review the arrangements in place now to understand how the changes will impact on company car renewals,employee benefits and enrolments. The impact on employment contracts must also be considered.
Arrangements which are in place before April 2017 will mean employers may still benefit from savings and we recommend that these are still considered.