Taxman goes after benefits in kind offered as part of salary sacrifice schemes.
Salary sacrifice schemes are agreements between an employer and employee where salary is given up in return for a non-cash benefit.
The reduction in pay means that people pay less tax and National Insurance (NI), while employers also see a reduction in their NI commitment.
Initially schemes were used to offer benefits that the government encouraged; pension saving, employer-supported childcare and the cycle to work scheme. However over time companies have taken advantage of the arrangements to offer attractive benefits essentially for free.
HMRC is now sufficiently concerned about the reduction in tax and NI receipts to have issue a consultation paper – “Consultation on salary sacrifice for the provision of benefits in kind” – which sets out proposals for revising the rules for salary sacrifice schemes.
The essence of the proposals is that only the core benefits identified above will be funded through the scheme. Benefits such as gym membership or mobile phones can still be part of salary sacrifice but the tax and NI advantages will be removed.
The consultation is open until October 19th 2016, which gives you a short time to provide feedback. If the changes are incorporated into the tax code as envisaged then there are implications to consider whether or not you currently use salary sacrifice schemes.
If you do use them then you might need to check employment contracts to ensure that you aren’t committed to providing benefits if tax savings are removed.
If you don’t use them then you may need to investigate a different way of offering benefits in future.
Lewis Smith & Co. will keep you posted on the status of salary sacrifice over the coming months.
In the meantime if you need advice on the implications of potential changes on your tax and NI position (personal or corporate) then get in contact with us today.
Lewis Smith & Co. – Providing accountancy expertise to Stourbridge businesses.