Can independent schools keep their school fee salary sacrifice schemes in place?
Update on the draft legislation (as of 29 June 2017)
Following the Spring Budget on 8 March the updated Finance Bill 2017 was published on 20 March 2017 and became law on 27 April 2017. The legislation addressed most of the concerns raised by schools and their representatives on the practical issues associated with the changes to salary sacrifice for school fees. Previously the draft legislation stated that the protection to April 2021 would be lost if there was a variation or renewal of the agreement. The concern was that this would mean the value of the sacrifice would have to remain static over the next four years and increases in fees could not be taken into consideration, otherwise the changes would amount to a variation or renewal to school fee agreements which would result in the loss of the ‘grandfathered’ right to continue in the scheme until April 2021.
The Finance Act 2017 now states that variations and renewals do not have effect in relation to “relevant school fee arrangements”. This means that so long as the employee had a relevant school fee arrangement in place by 5 April 2017 that agreement can be varied or renewed at any time without the loss of the protection to April 2021, subject to certain conditions. The legislation states that: Relevant school fee arrangements to which an employee is a party (“the continuing arrangements”) are to be regarded for the purposes of this paragraph as the same arrangements as any relevant school fee arrangements to which the employee was previously a party (“the previous arrangements”) if the continuing arrangements and the previous arrangements relate— (a) to employment with the same employer, (b) to the same school, and (c) to school fees in respect of the same child.
Prior to implementation of the new legislation on 5 April 2017 schools were advised as follows:
- Employees with one child in a relevant school fee arrangement which commenced or will commence on or before 5 April 2017 – continue as before and renew the agreement and/or vary the sum sacrificed as required in the future.
- Employees with two or more children in a relevant school fee arrangement which commenced or will commence on or before 5 April 2017 – vary the existing agreement to split the agreement by child in order that the school can evidence which child the salary sacrifice relates to.
- Existing employees who have a child due to start at the School in September 2017 - most schools entered the staff member into a salary sacrifice agreement for that child prior to 5 April 2017.
- Existing employees with a child who is due to move from the junior to the senior school in September 2017 – if the employer and the school are the same this move is protected by the transitional arrangements and no action is required because the school will be able to vary the agreement to take account of the increase in fees after 5 April 2017.
When considering whether the child will be at the "same school" for the purposes of the legislation (see above) Lorraine Owens from Crowe Clarke Whitehill says "bearing in mind that the legislation refers to “the same school” we need to consider whether the junior school and senior school are the ‘same school’ for these purposes. We believe that if the schools operate under one PAYE reference and ownership HMRC will agree if it is essentially the same school. We think this is likely to be the case with most schools."
Many schools will now be thinking about the changes they need to make to the salary sacrifice agreement for academic year 2017/18. In light of the "continuing arrangement" provisions in the new legislation, so long as the agreement relates to (a) employment with the same employer, (b) the same school, and (c) school fees in respect of the same child the agreement can be varied or renewed and the value of the salary sacrifice and the remission on school fees may increase. This exercise may be repeated through to September 2021.
Schools may also be interested to know that the government's clamp down on some salary sacrifice schemes has not affected salary sacrifice schemes relating to enhanced employer pension contributions. It is still possible for staff in defined contribution schemes (not TPS or LGPS) to sacrifice salary equal to the value of their employee pension contributions in return for an enhanced pension contribution made by the school. There are no tax savings involved in this scheme however both employee and employer save on NIC payments.