August 12th 2016 1:05 pm

Written by Robert Hudson

home :: tax news :: general

The Possible End of Salary Sacrifice Schemes

Taxman set to clamp down on how salary sacrifice schemes can be used to reduce tax for employers and employees.

Salary Sacrifice has traditionally been used to reduce a portion of an employee's salary in exchange for the provision of a service or otherwise, for example childcare vouchers, cars or car related items such as parking, education/training etc.

In recent times more elaborate schemes have been created to provide incentives and unusual perks to employees too. Companies can add extra value to their staff's remuneration packages through the use of such schemes and the amount offset can result in a reduction in tax paid by the employee as well as national insurance contributions for both employee and employer.

The Taxman has now set to look into how these schemes work and is consulting on reducing or stopping schemes they feel are masquerading as salary sacrifices that should be set up as BIK (Benefit in Kind) arrangements, and thus attract taxation. Essentially the offset salary amount or the value of the benefit provided through the salary sacrifice will become taxable.

Right now, the employer has a 13.8 percent saving due to not having to pay employers' national insurance contribution on the sacrificed salary amount.

In a consultation put out this week, the Taxman is looking to stop schemes such as free life cover or free phones but the following are set to remain allowed:

The consultation will run through to this October and is just looking to reduce or remove the tax benefit of salary schemes, however employers will not be prevented from offering them.

Results from the consultation will likely be discussed and possibly implemented during the Autumn Statement this December.

See more articles from August 2016

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