HM Revenue and Customs (HMRC) has launched a consultation on limiting the range of benefits that attract relief on tax and national insurance contributions (NICs) when provided as part of a salary sacrifice arrangement or flexible benefits scheme.
The consultation seeks to examine the potential impact on employers and staff should the government change the way the benefits code applies when a benefit in kind (BIK) is provided in conjunction with a salary sacrifice or flexible benefit scheme.
The government proposes to change tax legislation so that BIKs offered through salary sacrifice or flexible benefits would be chargeable to income tax and Class 1A employer NICs.
Employers would still be able to offer benefits through salary sacrifice arrangements, but they would not receive NIC or tax advantages in doing so.
The scope of the consultation does not include employer pension contributions, employer-provided pension advice, employer-supported childcare benefits and the provision of workplace nurseries, as well as equipment provided under the cycle to work scheme.
In the Budget 2016 documentation, the government stated that it was considering limiting the range of benefits that attract relief on tax and national insurance contributions (NICs) when offered via salary sacrifice arrangements. In the documentation it confirmed that pension contributions, childcare and health-related benefits, such as bikes for work, should retain tax and NIC relief when provided through salary sacrifice arrangements.
The consultation opened on 10 August and will run until 19 October 2016.
The government expects to make an announcement based on responses to the consultation during the Autumn Statement 2016. If any changes to policy are made, this will likely form part of the Finance Bill 2017.
Jane Ellison MP, financial secretary to the Treasury, said: “While the majority of employees are rewarded mainly with cash remuneration, the provision of benefits in kind is a long-standing component of reward packages. Such remuneration packages are now offered in many different forms, often including a mixture of cash and benefits in kind, such as pension contributions and company cars.
“The way in which benefits are provided has also evolved, with a growing market for flexible benefit packages, often combined with salary sacrifice arrangements. This growth represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers which use such arrangements and benefit from the tax advantages, and those that don’t. We want employers to continue to offer benefits to their employees, but need to balance this with the interests of all taxpayers.”
Susan Ball, head of employers advisory services at Crowe Clark Whitehill, added: “It appears that the government is unwilling to be seen to remove a popular and valuable way of providing benefits to employees, and has chosen instead to limit any tax and NIC savings. Some exempt benefits provided via salary sacrifice such as life insurance or a mobile phone will now become taxable on employees.
“Under these plans, employers will continue to have to pay the administration costs of the scheme, but will get no national insurance saving. Many employers will, therefore, be tempted to remove or reduce the salary sacrifice options available in future; they will have to balance this against the tensions this could cause with employees.”