PROMOTING FINANCIAL WELLNESS
SOMETHING ’ S GOT TO GIVE :
THE FUTURE OF SALARY SACRIFICE
This April , the government are making important changes to tax benefits schemes . Mina Pampus looks at how these might affect businesses nationwide .
From the fateful release of the Autumn statement , the changes to salary sacrifice are somewhat complicated . We ’ re here to help clarify the changes to you and , ever the optimists , are looking on the bright side and will be proving to you that it ’ s not all bad !
Salary sacrifice is financially beneficial for both employee and employer . Employees save because they are not taxed for the portion of money that they put towards their benefit . Employers save because they pay less in National Insurance .
SALARY SACRIFICE IS CHANGING
With the release of the Autumn statement , Chancellor Philip Hammond , announced that he plans to restrict the tax-free benefits offered by salary sacrifice schemes . The move is set to cost employees and employers £ 85m in 2017 rising to an additional £ 260m by 2020 .
The non-cash benefit will no longer come out of the employee ’ s pre-tax pay , meaning employees and employers who have opted-in to salary sacrifice schemes will be subject to tax and NI . The tax charges will be the same as those applied to cash income .
Perkbox spoke with Lynda Finan , Legal Director at DLA Piper , who summarised the changes as follows :
“ Where benefits are provided under arrangements whereby the employee can choose to receive the benefit instead of an amount of salary , the new legislation will require income tax and employer ’ s NICs ( but not employee ’ s NICs ) to be paid on the higher of
( i ) the amount of salary foregone , and
( ii ) the current taxable value ( basically the cost of the benefit ).
SALARY SCHEMES ARE A FINANCIAL BURDEN ON THE GOVERNMENT
The Treasury are clamping down on this as the schemes are becoming too costly and the Exchequer is making significant losses on income tax and NI contributions .
The clamp down comes after an increasing popularity in Pay As You Earn ( PAYE ) requests , which have increased by a third in the five years preceding 2015 , costing the government £ 15b a year .
EXAMPLE :
A 24-month mobile phone contract worth £ 1000 would cost the Exchequer £ 321 for a basic rate taxpayer , or £ 426 if the employee is in the highest rate tax bracket .
12