Salary sacrifice changes leave employers insufficient time to act

29 March 2017

Last week HMRC issued the final legislation in relation to the changes for salary sacrifice which come into effect in less than a week. These are some of the biggest and most fundamental changes to the taxation of benefits in kind in recent times and employers were given just over two weeks to prepare… or so we thought. Along with the legislation HMRC also published guidance on how they would interpret the changes but emphasised that the guidance was in draft form and by implication couldn’t be relied upon.

This is troubling on so many levels. Firstly, it appears that despite representations from a number of bodies that these changes needed more time - not only for in-depth consultation but also to allow employers to make the necessary changes to their internal processes prior to being introduced - HMRC and the treasury have decided to plough on with the implementation on 6 April.

Secondly, it has been pointed out that the legislation as drafted results in some anomalies. For example, where an employer provides a white goods scheme which results in the employee having a transfer of asset, it is possible that the employee may be taxed on 140 per cent or 160 per cent of the original value of the asset. HMRC has said in consultations that this wasn’t intended but the necessary changes have not been applied to the final legislation.

Finally, the guidance provided by HMRC is not only in draft form, but it doesn’t address many of the areas where we really thought further clarity was required. For example, we had hoped that there would be clarity around the circumstances when prospective employees join an organisation and what constitutes a cash alternative. The original guidance was promised in January but HMRC has said that due to staff constraints the publication had to be delayed, yet employers are expected to be able to comply with the new legislation with not only 16 days’ notice but also with guidance that is insufficient.

We hope that HMRC will bear this in mind in the future when a compliance review highlights aspects of non-compliance in this area.

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