News | Legal News

24 November 2016

Chancellor to limit ‘unfair’ salary sacrifice perks

Philip Hammond is targeting arrangements that see tax and National Insurance liabilities by employees who take a "salary sacrifice".

The Chancellor says he would end these "unfair" measures in April next year for all but a handful of benefits in kind.

Employees will lose out from a crackdown on perks that are taken directly from their wages before tax deductions to pay for anything from cars and mobile phones to private healthcare, school fees or gym membership.

Some firms have been angered by the new rules, claiming it will hit millions of workers, including many of the "just about managing" social group (Jams) who Theresa May has vowed to help.

Despite that the overall size of salary sacrifice schemes growing by 30% since 2009/10, only about 3% of taxpayers make use of the arrangements, according to the Treasury.

The new rules will allow schemes to be limited it to specific items which support other Government priorities - ultra-low emission cars, pensions saving, childcare and cycle-to-work schemes.

Existing perks will be allowed to continue until April 2018, with an extension to 2021 for long-term arrangements like cars, accommodation or school fees which will take time to reorganise.

"The majority of employees pay tax on a cash salary. But some are able to sacrifice salary and pay much lower tax on benefits in kind," the Chancellor told MPs.

"This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else."

Chris Brazier, senior associate, B P Collins comments:

'Salary sacrifice will now only be available for a much more limited range of benefits, which will undoubtedly lead to the now more costly benefits being withdrawn, to the detriment of employees.

'Those benefits that will no longer be eligible (such as company cars and private healthcare) will become significantly less attractive unless employers are willing to absorb the tax payable on those benefits. That is ultimately a decision for them but all employers should carefully check the contractual terms applicable to such benefits before taking steps to remove them to ensure they do not act in breach of contract.

'Our employment team can advise on this so please get in touch.”

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