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What are the latest changes to salary sacrifice?

The 2016 Autumn Statement introduced important changes to the Income Tax and National Insurance Contributions (NIC) of certain types of benefits in kind (BIK). Why the new rules?

The reason behind the changes was because of a significant increase in the number of BIK being made available to employees via salary sacrifice schemes. Under these arrangements employees agree to sacrifice an element of their salary and in return they are entitled to a range of different benefits – such as childcare vouchers or increased pension contributions.

From April 2017, HM Revenue and Customs (HMRC) introduced measures to limit the Income Tax and employer NIC advantages when benefits are offered under a salary sacrifice arrangement. 

Following the changes introduced, there will be two calculations for calculating the value of most BIKs provided under a salary sacrifice arrangement and the amount subject to tax will be the greater of:

  • Cash forgone; or
  • The amount calculated under the existing BIK rules.

What remains? 

There are no changes to the tax or NIC’s advantages of the salary sacrifice arrangements for the following benefits:

  • Pension savings into a registered pension scheme
  • Employer supported childcare (including childcare vouchers)
  • Cycle to work schemes
  • Ultralow emission cars (ULEV’s – where a car emits 75g CO2/KM or less)

Transitional rules

The changes also create a transitional period and there are provisions that apply to protect the following:

  • All arrangements that were already in place before 6 April 2017 – these will be protected from the new rules until 5 April 2018; and
  • Arrangements involving cars, vans, fuel, living accommodation and school fees – these are protected until 5 April 2021.
  • Renewals or variations made on or after 6 April 2017 (with limited exceptions) will not benefit from this protection and the new arrangements will become subject to Income Tax and NIC immediately.

What do these changes mean for you?

As an employer you should be aware of these changes and review your current salary sacrifice arrangements to ensure they comply with the new legislation.

This article was taken from the Autumn issue of the Professional Practices Group Newsletter. Download the full newsletter below.

Buzzacott's Professional Practices Group Autumn 2017 Newsletter

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