Current issues affecting benefit tax and legislation

What are the current issues affecting benefit tax and legislation?

This article is supplied by Benefex, sponsors of the flexible benefits channel

Benefits that are operated under salary sacrifice arrangements that save both tax and/or National Insurance are often subject to changes in their rules and regulations. Changes often have an impact on your Flex scheme, leaving you to modify how you operate your benefits or remove certain benefits all together.

Some of the current and high profile benefits that are experiencing changes to legislation include:

Salary Sacrifice Staff Canteens/Restaurants

HMRC are currently investigating the practice of sacrificing salary in exchange for meals provided at work. HMRC believes that the schemes may not be offering employees an effective salary sacrifice, as participating staff members retain too much control over how the tax-free cash is being spent. No decision has been made as yet, but it may mean that salary sacrifice canteen may no longer be available as part of employers Flex schemes.

Maternity Benefits

Under new legislation, due to come into effect on 5 October, employers will be required to extend the provision of noncash benefits available on normal maternity leave to women on additional maternity leave (AML).

Personal Accounts

As of 2012, employees will be automatically enrolled into their own ‘personal account’, and employers and employees will be required to pay a 4% and 3% pension contribution respectively.

Due to the auto enrolment, many employers will be looking to salary sacrifice arrangements to ensure that contributions are being made in the most cost effective way.

HM Revenue and customs produces guidance on how benefit legislation will change and how this will affect you as an employer. Alternatively, if you have any concerns or would like more information Benefex is happy to help; either visit us today or get in contact at any time to speak with one of our experienced consultants.

How can I ensure employees understand tax and NI implications?

When communicating to employees about tax and National Insurance, the clarity of the message is the most important factor. Salary sacrifice benefits can be confusing, and employees need to be reassured of how their take home salary can be affected.

Brochures are effective in imparting information about tax and NI for individual benefits, as this is often the principle method of communicating to employees.The language used needs to be appropriate to the audience using the correct tone, format and depth of information to engage with your workforce at the right level.

We recommend that each benefit and its tax and NI implications are covered separately to reduce any confusion.We have worked with clients who have used icons, such as piggy banks, on each page to clearly indicate savings that can be made. Worked examples are also very effective in illustrating in monetary terms how much can be saved and the effect on an individuals salary.

Face to face briefings or ‘clinics’ can also be very helpful for employees, who may wish to ask questions in person, or would like certain elements of the scheme explained in more detail. Many of our clients also use our helpdesk facility that can be contacted by employees throughout the year.

However, employers need to be aware that whilst employees can be advised on the principles of salary sacrifice benefits, specific financial advice should not be given unless that person is qualified to do so.

When the tax and/or NI implication is specific, for example you are introducing salary sacrifice on pension contributions; we have found that it is highly effective to produce personalised communications for each employee.We have worked with clients to produce personalised statements that include salary sacrifice information, FAQ’s and personalised scenario’s that illustrate the effect that any changes would have on each employee’s personal situation, that have had a significant positive impact on employee understanding and take-up.

What is the best way to communicate changes on a regular basis?

The nature of legislative changes means that it is often necessary to communicate modifications throughout the year, outside of your launch and annual enrolment communications. At these times employees need to be informed of any changes and be given the opportunity to ask questions.

To keep communication channels open we would recommend using the following methods, where appropriate, to effectively keep employees informed:

  • Email and/or written updates
  • Face to face briefings
  • Individual consultations to alleviate any concerns
  • Notices at logon to the Flex system
  • Posters

If you already utilise a helpdesk as part of your Flexible Benefits administration, employees can also be directed here to receive further information.

We find that it is also useful to appoint and train people within your organisation who can be on hand to answer any employee queries.

We always suggest that employers use as many communication channels as possible to ensure that all employees, both online and offline, are aware of and understand any changes that are happening.