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HMRC Launches Consultation On Limiting Salary Sacrifice Schemes

On 10 August 2016 HMRC published a consultation document seeking views on its proposal to limit the range of benefits in kind (BiKs) that attract income tax and NICs advantages when they are provided as part of a salary sacrifice scheme. The closing date for comments is 19 October 2016.

HMRC’s proposal will not affect employer pension contributions, employer-supported childcare, provision of workplace nurseries, the cycle to work scheme, payroll giving or intangible benefits, such as flexible working or additional holiday entitlement.

However, the consultation document makes it clear that “the government does not believe that other BiKs, effectively paid for by employees themselves through reductions in gross salary, should be able to be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.”

HMRC’s additional concern is that, where BiKs are offered only through salary sacrifice arrangements (as opposed to BiKs which are offered in addition to salary), employees with earnings at or near the National Minimum Wage cannot participate because salary sacrifice arrangements cannot reduce an employee’s take home pay below the NMW. 

HMRC proposes that BiKs provided through salary sacrifice (other than those such as employer pension contributions above which are unaffected) will become chargeable to income tax and employer NICs on either the amount of salary sacrificed or the cash equivalent specified by statute (whichever is greater). 

The proposed changes will take effect from April 2017, with legislation being introduced in the Finance Bill 2017. 

Responses to the consultation can be sent to employmentincome.policy@hmrc.gsi.gov.uk 

This bulletin is for general guidance purposes only and should not be used for any other purpose.

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