Revenue gets tough on salary sacrifice schemes
The previous Chancellor announced at the Budget in March 2016 that the government would consider restricting the range of Benefits in Kind (BiKs) that are exempt from Income Tax and National Insurance.
In August, HM Revenue & Customs (HMRC) launched its formal consultation on the changes – which proposes that almost all BiKs should be subject to Income Tax and National Insurance.
The only BiKs that HMRC is not consulting on are employer pension contributions; employer-provided pensions advice; employer-supported childcare and nurseries; and bicycles and cycle safety equipment. All other BiKs would be subject to Income Tax and National Insurance.
The document states: “Many BiKs are offered in addition to salary, but HMRC has seen a growth in salary sacrifice arrangements in recent years.
“These are agreements between an employer and employee to change the terms of an employment contract and reduce the employee’s entitlement to cash pay in exchange for some form of non-cash BiK.
“The effect of this, depending on the BiK, is often to reduce the amount of income tax, employee and employer NICs due on the employee’s remuneration.”
HMRC suggests that this creates unequal conditions for employers and employees that use salary sacrifice BiKs and those that do not.