Salary sacrifice benefits to change

Proposals to change salary sacrifice 

Salary sacrifice benefits look set to change as HMRC has announced plans to take away the tax and national insurance contributions (NICs) saving advantages from April 2017.

However, schemes involving pension saving, employer supported childcare and cycle-to-work benefits will not be affected by the proposals.

How does a salary sacrifice scheme work?

Salary sacrifice schemes involve employees agreeing to reduce their Salary in return for non cash benefits, known as benefits in kind (BiKs). Whilst salary  is  chargeable to income tax  and NICs, many BiKs are not. BiKs are therefore used by employers as a useful tool for rewarding their staff.

For instance, if an employer provides a director or employee with a mobile phone for private use, the benefit is exempt from tax and national insurance contributions. So if it is provided in addition to salary there is no extra tax or NICs liability.

It is the same where the employer has provided the phone under a salary sacrifice agreement: both the employer and employee save tax and NICs compared with the employee buying the same phone from their take-home pay.

Case study: The £700 telephone contract

The table below shows the amount of tax and NICs saved on a telephone contract of £700 purchased through salary sacrifice by an employee in each income tax band, by an employer, and the overall cost to the Exchequer, according to HMRC.

Table with details of salary sacrifice savings and cost to the government

Reasons for the proposals

There has been a big growth in schemes covering private medical insurance, extra leave, cars, health screening and mobile phones at a time when the Government is seeking to increase tax revenue to reduce its borrowing deficit.

The Government’s strategy is to let employers provide benefits in kind to employees through salary sacrifice but to take away the tax advantages and charge NICs under class 1A on the employer. The closing date for comments is 19 October this year after which the new rules will be announced and will come into force at the start of the next financial year.

If you would like to know you how you can use salary sacrifice to your advantage in the meantime, please don’t hesitate to contact our payroll team or ring Sarah Harkness on 0161 456 9666.




Let’s start a conversation 

    Subscribe me for updates and news from In Accountancy

    Related articles

    time to pay arrangement
    Limited Companies

    Time to Pay Arrangements: A Lifeline for Owner-Managed Businesses

    Are You Struggling to Meet Your Tax Obligations?

    More than 30,000 UK businesses were involved in some kind of insolvency action in 2023, which was an increase of more than 50% compared with 2021 according to an article in the Guardian earlier this year.

    And the economic outlook would suggest that despite the fact that we are no longer in recession, 2024 and 2025 will be a challenging year for UK small business.

    With this in mind we have prepared the following guide and associated video to help you understand what your options are with regards to agreeing what is known as a ‘Time to Pay’ arrangement with HMRC.

    Read More »

    Find out how we can help?

    Lectus scelerisque a donec tincidunt litora per eleifend eget ut sagittis conubia pharetra scelerisque dui ultricies duis parturient auctor adipiscing.


    Let’s start a conversation 

      Subscribe me for updates and news from In Accountancy