Salary sacrifice arrangements are where employees give up some part of their salary in return for an employer provided benefit. These are often tax efficient as the benefit chosen is often a no or low tax benefit in kind.
We posted more details on salary sacrifice as a FAQ here.
Changes announced in 2016 Budget and Autumn Statement will make salary sacrifice arrangements no longer tax free. The new rules apply whether an employee reduces their salary, or chooses to forego an offered salary or salary increase.
Example for a mobile phone made available to an employee costing the employer £700:
OLD rules (up to 5 April 2017) – in all cases a single mobile phone provided to an employee was tax free.
NEW rules (from 6 April 2017):
a) Employee provided with a mobile phone in return for salary sacrifice (reduction) of £500: employee taxable on £500 (higher of normal benefit in kind being nil and salary sacrifice being £500).
b) Employee offered mobile phone or pay rise of £500 and chooses mobile phone: employee taxable on £500
c) New employee offered mobile phone or higher starting salary of extra £500 and chooses mobile phone: employee taxable on £500
d) Existing or new employee provide mobile phone with no choice of having a higher salary: no taxable benefit, mobile phone is tax free.
However the following will NOT be effected and will remain tax efficient:
- Employer pension contributions and contributions towards pension advice (up to limits)
- Childcare vouchers (up to limits)
- Bicycles used partly for commuting or business travel
- Very low or zero emission cars (not tax free but low tax)
All of the above remain tax free even under a salary sacrifice or salary choice arrangement.
As with all of our tax tips and web pages this information is necessarily summarised and of a general nature. If you would like detailed specific advice please contact us.