The Government will legislate in Finance Bill 2017 to remove the income tax and NICs advantages of benefits provided through salary sacrifice arrangements. The legislation will apply from 6 April 2017. The draft legislation is now in a period of consultation, which runs until 1 February 2017 and the final details will be confirmed in the Spring Budget 2017.
Therefore, with effect from April 2017, certain benefits provided through salary sacrifice will be chargeable to income tax and class 1A employer NICs on the higher of the value of the benefit provided or the amount of salary foregone. The benefits that will not be affected by the changes are pensions, cycle to work, ultra-low emission (ULEVs) cars, employer-supported childcare (childcare vouchers, directly-contracted childcare and workplace nurseries) and intangible benefits such as annual leave purchase.
Salary sacrifice arrangements in existence before April 2017 that remain in place and are not ‘renewed’ will be protected until April 2018, with an extended protection period until April 2021 for cars, accommodation and school fees. However, the protections are subject to certain conditions.
It is therefore essential that employers consider the implications and plan accordingly for the changes to ensure existing and new benefits provided through salary sacrifice arrangements are dealt with correctly.