Employee salary sacrifice schemes such as gym memberships, phones and insurance will no longer be tax-free, the chancellor Philip Hammond has said in the Autumn Statement.
The clampdown on sacrifices would not have come as a surprise to most. In the former chancellor George Osborne’s last budget, the government was looking at ways to cut salary sacrifice schemes. The government estimates a loss of around five billion a year through this scheme, so it comes as no surprise that they are restricting them to regain lost tax revenue.
The announcements also gave clarity on what can be included in salary sacrifice schemes; including pensions, childcare vouchers and cycle to work schemes.
The Treasury said that the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017. It is estimated that the cuts will raise the Treasury £260 million a year by 2021.
Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Paul David Munnelly, CEO of City Calling comments on the predicted proliferation of ‘soft benefits’
“As part of the Autumn Statement, we will soon see salary sacrifice schemes abolished around the UK. In response to this, we expect to see an an even higher rise in ‘soft benefits’; perks such as duvet days, early finish Fridays and flexible working hours will increasingly be valued due to salary-sacrifice schemes.”
The move reflects a huge change-around for the scale and nature of employee benefits, which have seen a boom in recent years with the influx of large employee benefit providers and personalised benefit packages.
It is likely that salary sacrifices will become far less attractive when they are subject to tax that effectively makes an employer-provided benefit no cheaper than one purchased on the open market, unless the employer absorbs the tax charge.
Mark Groom, tax partner at Deloitte, comments on radical new proposals for the taxation of benefits in kind and salary sacrifice schemes:
From April 2017 tax bills on many benefits in kind will increase, in some cases significantly. The new rules will apply whenever a benefit is provided in conjunction with salary sacrifice. It will come as a surprise to many that the new rules will also apply in cases where an employer offers employees a choice between a benefit and a cash alternative, if the benefit is not wanted.
One of the reasons for the change was the perceived tax cost of salary sacrifice schemes; however the measures are only anticipated to raise £85 million in 2017/18 and £235 million per annum thereafter.
Where the new rules apply, the tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.
The impact of the changes will be greater on benefits with low statutory tax values, such as benefits that are exempt from tax, including workplace gyms, car parking and death in service policies.