The UK government has announced plans to restrict the tax-free benefits offered by the schemes.
Perkbox reported in a document that Philip Hammond intends to restrict the salary sacrifice scheme of tax-free benefits in 2017. The schemes were introduced so that employees could take part of their salary as non-cash benefits, helping both employer and employee to save as the former paid less National Insurance (NI) and the latter were “not taxed on the money they put towards the benefit”.
The decision by Hammond means that the schemes will be subject to both tax and NI (National Insurance), cancelling out advantages for both sides as the tax will be equivalent to that applied to cash income, noted the report. There are some exemptions such as pensions, childcare vouchers, cycling to work and low emission cars.
Commencing April 2017, company cars, work-related training, car parking near a workplace, gym membership, health screening checks, mobile phones and technology, additional annual leave, will writing services and gadget insurance will no longer offer tax relief. If arrangements have been made prior to this date they will be honoured for one year, and long-term agreements such as cars, accommodation and school fees will be “protected until April 2021”.
Perkbox also pointed out that “many employers are reliant on the salary sacrifice mechanism to fund key areas of benefit provision”, and that theses changes “mean the agreement will no longer be financially advantageous for the employee, nor the employer”. Instead it will cost both £85 million ($108 million/€101 million) in 2017 and rise to £260 million ($330 million/€311 million) by 2020.
According to Perkbox there is some light at the end of the tunnel however, as there are still valuable exemptions from the new regulations, and employers should look at identifying “the elements of […] current salary sacrifice scheme[s] that will be affected”, to work out how this will financially affect the business as well as how this will affect employees both mentally and financially.
Employers need to be transparent at this time, it added, and help employees to understand the changes as well as exploit the short time span by encouraging them to sign up for existing salary sacrifice schemes before April 2017. They should also look to “ease financial pains by introducing other financial wellbeing solutions and voluntary benefits”.