Within the detail of the Autumn Statement yesterday, George Osborne said measures would be taken to prevent, “payments of benefits in lieu of salary”. HM Treasury also said that tax relief would be prevented on reimbursed business expenses where they are paid in conjunction with a salary sacrifice scheme.
Not unusually, it is unclear at this stage exactly what this will mean or how it will work. Obviously it will be a very fundamental change if salary sacrifice is prevented completely and it is difficult to see how this would be achieved given that it is essentially a matter of employment law and contracts. One of the Government’s concerns is likely to be that under the new pension freedoms an employee over 55 could sacrifice salary into his pension scheme and then immediately draw it back out from his pension. This would provide large potential tax and NI savings for employees over 55 and their employers and create a corresponding financial hole for the Government. More information on this can be found on the Parliament website. The issue is whether in trying to stop this specific problem the Government will take blunt-instrument steps which affect salary sacrifice more generally.
It is also not yet clear whether we will see draft legislation in the Finance Bill next week which sheds any useful light on what is proposed. Abolishing salary sacrifice would seem to be counter-intuitive given recent measures to increase the level of pensions savings, not to mention a most unlikely vote winner in the lead-up to an election but it is obviously one to watch as it would potentially affect a large number of businesses and individuals.