HM Revenue & Customs assistant director Bill Streeter has told employers that they do not have to resort to salary sacrifice to offer staff tax-efficient benefits as he warned that there is “danger” in treating the two as one.
Speaking at Employee Benefits one-day event How to Pay Less Tax on Benefits, Streeter said tax-efficient benefits such as childcare vouchers, bicycles for work and home computing schemes need not be offered through salary sacrifice and can be provided on top of salary. “Salary sacrifice is distinct from the tax rules and there’s a danger that these things get rolled into one,” he added.
For bicycle and computer schemes, tax relief only applies to the benefit charge that would otherwise arise on the use of the employer-owned asset and to loans, not to equipment bought by employees through hire purchase agreements.
He said how employers choose to give benefits is not a tax matter, but how it is done affects tax and national insurance (NI) liabilities. For salary sacrifice to be effective, the future salary must be given up before it is treated as received for tax and NI purposes and the construction of the revised contract between employers and staff, must be such that an employee is entitled to lower cash pay and a benefit.
He warned that employers should consider the effects of salary sacrifice if staff are close to the minimum wage.
Martyn Phillips, consultant at Towers Perrin, later put the case for salary sacrifice schemes saying that many companies will lose their competitive edge without them by missing out on savings.