Do You Know About The Changes to Salary Sacrifice Schemes?
The Chancellor also announced in his Autumn Statement that he intends to legislate to remove the income tax and employer’s Class 1A National Insurance contributions (NICs) advantages from salary sacrifice arrangements. In this context, salary sacrifice includes Benefits in Kind (BiKs) with a cash allowance option and flexible benefit packages with a cash option. However, he will not limit the income tax and Class 1A NICs advantages for salary sacrifice for:
- payments by employers into registered pension schemes and employer provided pensions advice
- childcare vouchers, workplace nurseries, and directly contracted employer provided childcare
- bicycles and cyclist safety equipment (including Cycle to Work), and
- Ultra-Low Emission Cars (ULEVs) with emissions of no more than 75g CO2/km, that are in the scope of the car benefit charge.
For all other BiKs provided through salary sacrifice arrangements, including currently tax exempt BiKs (such as mobile phones), the value of the BiK for income tax and Class 1A NICs will be the higher of the current taxable value or the cash foregone. There will not be a Class 1 NICs liability, unless one already exists on the benefit (such as in the case of vouchers).
Employers and employees are still free to use salary sacrifice, but with the tax and Class 1A NICs advantages removed.
The new rules will come into effect on 6 April 2017 but there will be transitional arrangements:
- All arrangements entered into before 6 April 2017 will remain under the pre-2017 valuation rules until the earlier of:
- Change, renewal (including auto-renewal) or modification of the arrangement, or
- April 2018 (April 2021 for cars with emissions of more than 75g CO2/km, accommodation and school fees).
The P46 (Car) will not be amended for tax year beginning 6 April 2017 so employers should continue to use the existing form. HMRC will make adjustments to employees’ tax codes for the tax year beginning 6 April 2017 for car benefits based on the current rules.
After the end of the 2017 to 2018 tax year, HMRC will use information provided on a new style form P11D to identify any cases where the new rules give rise to a different tax result. A new P46(Car) form will be introduced from 6 April 2018 for car changes from April 2018, which will give employers and software providers time to amend payroll software as necessary.