Workplace pensions, childcare and cycle to work schemes have been left out of plans to reform salary sacrifice, according to a recently published HMRC consultation.
In Consultation on salary sacrifice for the provision of benefits in kind views are not being sought on employer pension contributions or employer provided pension advice based on the recommendations of the Financial Advice Market Review (FAMR).
This is in line with Budget 2016 where the government said it would exclude a number of benefits in kind (BiK) as it wished to encourage employers to provide these to employeers.
Employer supported childcare and the provision of workplace nurseries will also be excluded as are health-related benefits such as the cycle to work scheme.
However, other BiKs such as the provision of mobile phones are included in the consultation.
In these cases the government proposes to change tax legislation so that where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions (NICs), even if it is normally exempt from tax and Class 1A NICs, at the greater of:
• the amount of salary sacrificed; and
• the cash equivalent set out in statute (if any).
This would mean that where the normal taxable value of the BiK is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way.
According to the consultation document the proposal "does not prevent employers from providing BiKs to their employees through salary sacrifice, but it will remove the tax and NIC advantages that come from doing so."
While the government had previously said it would not include workplace pensions and childcare provisions in its plans for reform, the consultation statement brings welcome clarity.
"Salary sacrifice has been under the spotlight for some time and alarm bells had been ringing in the industry," said Aegon head of pensions Kate Smith. "We were worried about the potential impact it might have on auto-enrolment as many employers utilised salary sacrifice to mitigate their costs. The consultation brings clarity that nothing is going to happen in this area and it is good to see the government recognising the importance of workplace in pension provision and also the delivery of advice. It is all good news."
There has been significant growth in salary sacrifice in recent years. According to HMRC there was an increase of a third in PAYE clearance requests from employers for salary sacrifice arrangements since 2010.
Government admitted its concern about the growing cost of these schemes at Summer Budget 2015 and again in the following Autumn Statement.
Between December 2015 and February 2016, the government undertook an evidence gathering exercise to better understand the use of salary sacrifice and announced at Budget 2016 it was considering limiting the range of BiKs that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes.
The consultation will run until 19 October 2016.
Written responses to the consultation can be addressed to: Employment Income Policy Team, Room 1E/08, 100 Parliament Street, London, SW1A 2BQ or e-mailed to: [email protected]
The government will publish details of the consultation responses and expects to make an announcement at Autumn Statement 2016.
Any policy changes are expected to feature as part of Finance Bill 2017 with legislation taking effect from 6 April 2017.
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