New rules for taxing many salary sacrifice arrangements come into force from 6 April.
One of the employment trends of recent years has been to make employee remuneration more flexible. Instead of pay and, if you were lucky, a company car and healthcare, ‘cafeteria remuneration’ has become common. This gives employees the choice of sacrificing pay for a wide range of benefits from extra holiday to gym membership and mobile phones.
Employers and employees have both gained from these arrangements:
The main loser from salary sacrifice arrangements has been HM Treasury, so it was little surprise when George Osborne signalled a review in last year’s Budget. This produced a consultative document that has now been transformed into draft legislation.
The changes, which took effect from the start of the 2017/18 tax year, remove most of the advantages of salary sacrifice, with a few important exceptions. For new schemes, income tax and employer’s NICs will be based on the greater of:
There are some inevitable transitional measures for arrangements in force before 6 April 2017, but apart from cars, employer-provided accommodation and school fees funding, the new rules will bite in no more than 12 months’ time.
There is also a handful of specific exemptions, one of the most important of which is salary sacrifice arrangements for pension contributions. These continue to provide major benefits, as the example shows.
It could be worthwhile getting a personalised illustration of how salary sacrifice could boost your pension contributions. It could make up for the extra tax you will end up paying on other sacrifice arrangements…
For specific advice, please contact Bishop Fleming Independent Financial Advisers.
Bishop Fleming Independent Financial Advisers is a trading name of Fleming Financial Ltd which is authorised and regulated by the Financial Conduct Authority.
For more information please contact me or your usual Bishop Fleming adviser.
Posted by Ian Saunders on April 26, 2017
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