Salary sacrifice arrangements

An expected announcement was made in the latest Autumn Statement, pertaining to salary sacrifice arrangements, which the government perceives as having been subject to abuse.

From April 2017, new rules will be implemented to address perceived tax advantages of these arrangements, meaning that as a minimum, tax and Employer’s NIC will be charged on the amount of salary sacrificed meaning that any tax and Employer’s NIC savings are wiped out.

Exception remains for arrangements pertaining to pension contributions, childcare, cycle to work schemes and the provision of ultra-low emission cars.

Other plans in place by 6th April 2017 will be allowed to run until 5th April 2018, and where these plans relate to cars, accommodation or school fees, this is extended until 2021.

Employee NIC savings will still be available, and the specified benefits (e.g. pension contributions) will continue to enjoy tax exemption. A common scenario is for auto-enrolment pension contributions to be combined with a salary sacrifice for tax efficiency. Beware that salary sacrificed cannot be considered for meeting National Living Wage/National Minimum Wage requirements, and that entitlement to benefits under salary sacrifice arrangements may continue whilst employees are on sick leave, maternity leave etc. when the entitlement to the salary sacrificed would otherwise have stopped.