The use of salary sacrifice arrangements, under which employees give up salary in return for benefits in a manner that is (usually) more favourably from a tax and national insurance perspective, has been noticeably growing in recent years, with clearance requests submitted to HMRC up by over 30% since 2010.
The government announced in 2015 that it was actively monitoring this growth and has followed this up at Budget 2016 with an announcement that it is considering limiting the range of benefits that attract tax and national insurance advantages when they are provided as part of salary schemes. Importantly, however, they have confirmed that their intention is for pension saving, childcare and health-related benefits such as cycle to work, to continue to benefit from income tax and national insurance relief even where they are provided through a salary sacrifice arrangement.
This will be welcome news for many employers. It was widely speculated following the Chancellor’s unexpected u-turn on pension tax relief reform that restrictions would instead be made on the use of pension related salary sacrifice schemes. With an estimated 70% of employers using salary sacrifice as a means of reducing the cost of workplace pensions, today’s announcement confirms the continued viability of those arrangements for employers. However, other types of salary sacrifice not covered by this green light must surely now be at high risk.
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