For many years there has been speculation around salary sacrifice schemes i.e. employees exchanging cash remuneration for a benefit in kind. The 2016 Autumn Statement and subsequent government documents have finally ended the conundrum; well sort of!
HMRC says employers are still free to use salary sacrifice schemes, but what does that statement mean in reality? You can continue as you do now for;
Payments by employers into registered pension schemes and employer provided pensions advice
Childcare vouchers, workplace nurseries and directly contracted employer provided childcare
Bicycles and cyclist safety equipment; cycle to work scheme
And finally Ultra-low emission cars (ELEVs) that don’t exceed 75g CO2/km
For anything else you might have in your flexible benefits/reward package there are new rules and of course increased costs.
So what will you need to do?
Any other benefits in kind (BiKs), including those exempt from tax and National Insurance e.g. mobile phones, if the employee has sacrificed/exchanged cash remuneration for it, you will need to apply a charge to it. You will need to work out the taxable amount on either the actual value of the BiK or the cash foregone for the BiK. You will also need to work out the Class 1A National Insurance liability on the BiK. There will not be additional Class 1 NICs, unless already applied e.g. on vouchers, which should be getting processed through the payroll already anyway for Class 1.
HMRC, during consultation planned for this to come into force from April 2017. Now unfortunately, it does come in from April 2017, but HMRC did listen to stakeholders, such as Armstrong Watson’s payroll and tax teams and have legislated for transitional arrangements.
Any agreements entered into before April 2017 will remain under the pre-April 2017 rules. This has been interpreted as meaning any agreement signed pre-April 2017, even if the sacrifice doesn’t start until later in the tax year; this will help those ordering cars with a delivery date to allow for a new vehicle registration plate. These pre-April 2017 arrangements can remain in place until there is a change, renewal or modification to the arrangement, or April 2018 whichever is sooner. For cars with emissions of more than 75g CO/km, accommodation and school fees, these benefits can run until April 2021, providing no change etc.
Form P46 (car) will stay the same until after the end of the 2017 tax year, with a new P11D form to be introduced thereafter.
You need to act now; April 2017 is coming round fast, if you want to keep agreements until 2018 get them signed soon. You will need to change contracts of employment and your flex bens packages for those who will no longer be able to benefit from tax and NICs savings. You will also need to account for this in your budgets!
