Salary Sacrifice Schemes

Salary Sacrifice Schemes

Employers: do you know that the rules regarding salary sacrifice schemes are due to change next April?  Have you considered what this will mean to your company budget?

Employees: do you drive a company car or benefit from a company mobile phone, paid for through a salary sacrifice scheme?  If you do, you will want to read on…

Salary sacrifice schemes are a popular way to provide company perks to employees whilst saving money. Employers benefit from reduced National Insurance costs, while employees gain from their lowered taxable income. Everyone’s a winner!  Everyone, that is, except the Treasury, who have calculated the annual loss of taxable income due to these schemes and decided enough is enough.

Once an employee has opted to give up a portion of his/her salary in exchange for a perk, the money sacrificed is no longer included in the taxable rate for income tax or NI, reducing the amount of tax deducted.

In the Summer Budget 2016 the government announced plans to limit the number of salary sacrifice schemes that yield tax and NI advantages.  Many are protected from the changes proposed for 2017: workplace pensions, childcare vouchers and bicycles, through the cycle to work scheme will all stay as they are, at least for now.  But the other perks offered by tax-savvy companies: cars, car park spaces, mobile phones, gym membership, computers and white goods, to name a few, will soon cease to generate savings for either employer or employees.

For many employees, who have endured a number of lean years with little or no salary increases, perks such as a company car are likely to have a big impact on their sense of success and satisfaction.  Removing the tax breaks that come with this benefit will make a big impact, not only on budgets but, arguably, also on employee wellbeing.

However, for smaller companies who don’t have the opportunity to offer these big money perks, the loss of salary sacrifice tax breaks may help to level the playing field and potentially widen the recruitment pool for them.

The proposed changes will be introduced through legislation in the Finance Bill early next year and will take effect from 6 April 2017.