Changes to salary sacrifice tax benefits
Salary sacrifice schemes are popular with both employers and employees as a way of helping staff to save money and spread the costs of certain items. They work via a non-cash benefit that comes out of the employee’s pre-tax pay – so the employee saves the tax and the national insurance cost. The employer also saves their portion of national insurance contribution.
However from 06.04.17, most of these current tax-free schemes will become liable to tax. The salary sacrifice schemes that will be affected by the tax change include:
company cars
car parking
school fees
health screening checks
mobile phones
accommodation
gym membership
work related training
Exemptions from the new rules will apply to pensions, Child care vouchers and cycle to work schemes.
Clients have asked us about existing schemes and these will stay tax free until April 2018. This is extended to April 2021 for schemes relating to cars, accommodation and school fees.
So moving forward if you are an employee with the option to join a salary sacrifice scheme, it may be beneficial to take it up before 4 April 2017 so you can enjoy the tax exempt status for a little longer.
If you are an employer, you will need to start planning for how you deal with salary sacrifice schemes from April 2017 and the associated increase in national insurance costs.
