Salary Sacrifice: When will the changes bite?
By now we would hope that most employers are aware of the announced changes to Employee Benefits provided through the mechanism known as Salary Sacrifice. Yet we think that far fewer will be fully familiar with the finer details of the proposals, and in particular when such alterations will actually apply to their particular organisation and/or benefits offering. And, given that the changes begin to bite next week, now seems like a rather good time to look at this situation in a little more detail.
So let’s start with a quote taken directly from the 2016 Autumn Budget Statement document on this point:
“Salary sacrifice – following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021″
Although the entire paragraph is of use in clarifying the intention of the government, the words in bold are the ones we will concentrate on today. For the above wording suggested that those employers with Salary Sacrifice schemes already in place need take little, or no, action before April 2018.
Yet this is not actually the case. HMRC published this document in December 2016 which included the more detailed proposals of the policy. We would highlight the following paragraph as of particular importance to employers:
The measure will have effect for all contracts for BiKs* involving salary sacrifice arrangements entered into on or after 6 April 2017. Those employees already in such contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:
- an end, change, modification or renewal of the contract
- 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021
ULEVs** will retain their current tax treatment and will not be subject to the new rules.”
The same document later goes on to reiterate;
“Current contracts will remain under the pre-2017 rules until the contract ends, is modified or changed or is renewed, or April 2018 at the latest. However, the April 2018 deadline is extended to April 2021 for cars, accommodation and school fees.”
The implications of the above are very clear. Any Salary Sacrifice policy that renews on or after 6th April 2017 will be subject to the new rules (except for those excluded from the announced changes).
It is also worth highlighting that any individual new joiners to such a scheme on or after the 6th April 2017 will be subject to the new rules (even where the wider scheme has not yet reached one of the end dates mentioned above).
On a more positive note, the same document also provides a more extensive list of all those benefits that will not be impacted by this rule change:
- employer provided pension saving
- employer provided pensions advice
- childcare vouchers
- workplace nurseries
- directly contracted childcare
- cycle to work schemes
- ULEVs emitting 75g CO2/km or less
It should be noted that the range of benefits that use the Salary Sacrifice mechanism is rather large and varied, so each and every employer may face different issues and challenges as a result of this change.
All of the above is yet to be solidified in actual legislation (which is unlikely to happen until April now) – but employers would still be wise to start their planning and actions based on the above information. In particular we would encourage early and informed communications with employees who might be directly impacted by the changes. The HMRC document estimates that this grouping could be as large as 1 million individual workers.
For more information on any of the above please speak to your usual Jelf consultant in the first instance or visit our Workplace Savings section.
*Benefits in Kind
**Ultra Low Emission Vehicles
- employee benefits
- employee engagement
- workplace pensions