Last week, HMRC published a consultation document which sets out its proposals to tax benefits-in-kind provided through salary sacrifice schemes.
Salary sacrifice or ‘flexible benefit’ schemes have been big business as an attractive recruitment tool for large employers and the cost to the Exchequer has been lamented by the government.
These work by offering employees benefits-in-kind that are tax free or subject to more favourable tax treatment than salary, in return for the employee giving up gross salary. This is a good idea as the employee would rather enjoy benefits tax free rather than paying for the benefits using taxed salary.
Subject to specific exceptions (below), the proposals will broadly catch those benefits for which salary has been sacrificed, including the provision of mobile phones, laptops, free car parking, health screening and sports facilities. Although health-related benefits provided for staff are generally exempt from tax, such as the provision of a work gym or health screenings, where such benefits have been valued for the purposes of sacrificing salary, they will be caught.
It is proposed that from 6 April 2017 all the tax advantages which are shown in our example will be reversed.
The following will be excluded from the proposals although this is no great comfort:
The consultation is open for comments until 19 October and so it is possible that proposals will be mitigated to some extent. If not it is likely that many salary sacrifice schemes will be knocked on the head with a corresponding tax hit to employees. It remains to be seen whether large firms will pick up the shortfall with salary step ups…….
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