Susan Ball: What do the changes to salary sacrifice mean for employers?

With publication of the Finance Bill, the final legislation around changes to salary sacrifice is now available, and considerably more pages have been added. Given the volume of additional legislative text, coupled with the short timeframe between publication and the 6 April 2017 effective date, employers face significant practical difficulties in making sure they have everything in place for the commencement of the new optional remuneration arrangement (Opra) or salary sacrifice rules.

Broadly speaking, where an employee has an option to receive cash or benefits, the new rules may apply. While the final draft includes detailed rules covering a number of specific benefits, and this is welcomed, employers will only have had just over two weeks to finally revise processes to ensure they are able to deal with new joiners from 6 April and any changes or variations to existing arrangements after this date, which mean that the transitional rules come to an end.

Where the new rules apply (there are some transitional arrangements for certain benefits) the taxable value of benefits in kind (BIKs) provided as part of an Opra as the higher of: the cash equivalent of the BIK (as prescribed by the current legislation); or the amount of salary forgone less any amounts made good by the employee.


The changes come into effect from 6 April 2017, though transitional provisions will cover some scenarios. For instance, living accommodation, school fees, company cars, vans and fuel provided via an Opra entered into pre-6 April 2017 will not be impacted by the new rules until 6 April 2021, subject to there being no variation. Other benefits provided via an Opra entered into pre-6 April 2017 will not be impacted by the new rules until 6 April 2018, again subject to there being no variation.

Employers and employees should exercise extreme care because any ‘variation’ to the terms may lead to the transitional status being lost from the date of that variation. Only the following variations will not result in the transitional rules being lost early: accidental damage; reasons beyond the control of the parties such as an accident in a company car; reasons connected with sick pay, statutory maternity, paternity, and shared parental pay; and statutory adoption pay.


It is clear that, even now, smaller employers may not understand that these new rules will impact them when, for example, they have offered a new employee a car or cash alternative. We have to hope that HM Revenue and Customs (HMRC) will apply a light touch to penalties for at least the first year while employers get to grips with them.

What is clear is that employees working alongside each other for several years to come could be taxed very differently because of when and how each negotiated their remuneration package. It is also clear that these new rules could impact those in receipt of child tax credit and working tax credit because the assessment for these includes BIKs. In other words, we will continue to have the uneven playing field that the government was so concerned about.

It will be interesting to see if, over time, employers start to revert to the old-style form of core flexible benefits of a set value, provided without a cash alternative.

The good news for independent schools is that the confusion around school fee salary sacrifice has been clarified and a sensible approach has been taken by government, allowing many in existing arrangements (that is, those entered into before 5 April 2017) to take advantage of the current rules until 2021.

Finally, the list of ‚Äėexcluded items‚Äô has increased. Common provisions, which are not to be affected even if provided via an Opra, are: pension saving under registered and qualifying overseas plans, including related pension advice; tax-exempt childcare, including qualifying nursery provision and childcare vouchers; bikes-for-work schemes; counselling and other outplacement services; purchase of annual leave; and ultra-low emission company cars (ULEVs) with CO2 emissions less than or equal to 75 g/km.

Susan Ball is head of Employers Advisory at audit, tax and advisory organisation Crowe Clark Whitehill