Autumn Statement 2016: Reaction to clampdown on salary sacrifice

In his Autumn Statement the Chancellor set out plans to tighten rules that allow employees to forgo part of their salary in return for certain employee benefits. Phillip Hammond said these salary sacrifice arrangements are ‘unfair’, and so from April 2017 the tax and national insurance benefits of using these schemes will be scrapped.

‘The government will take action now to reduce the difference between the treatment of cash earnings and benefits. The majority of employees pay tax on a cash salary. But some are able to sacrifice salary and pay much lower tax on benefits in kind. This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.
‘Following consultation with stakeholders, ultra-low emission cars, pensions saving, childcare and the cycle to work scheme will be excluded from this change. And certain long-term arrangements will be protected until April 2021.’

Chris Sanger, head of tax policy at EY, said:

'Despite plenty of evidence that he was targeting the wrong people, the Chancellor has gone ahead with controversial proposals to remove the tax and national insurance advantages of salary sacrifice arrangements. The effect of the change will apply income tax and employers’ national insurance contributions to the higher of the value of the benefit received or to the amount of salary sacrificed.
‘While he may have avoided undermining his environmental credentials by excluding low emission cars, the denial of relief for the many basic rate tax payers who benefit from salary sacrifice schemes sits oddly with a government committed to helping those who are ‘just about managing’.
‘Salary sacrifice has been a great enabler, allowing lower paid employees to choose the benefits they want, something previously only possible for those nearer the boardroom. Denying relief when benefits are chosen in this way will also penalise those longer term employees, compared to new joiners who agree their benefits before they start work.'

Sue Robinson, employment tax partner at EY, said:

‘People who use such schemes for benefits such as health screening and mobile phones and tablets will be among those who see their tax bills rise. Many of those benefits in kind are often portrayed as “perks” for the higher paid, but the expansion of the salary sacrifice model over recent years will mean that large numbers of basic rate taxpayers will be impacted, particularly in sectors such as the health service.’

Colin Ben-Nathan, tax partner at KPMG, said:

‘The government has decided to press ahead with the removal of tax advantages for salary sacrifice, aside from pensions, childcare, cycle-to-work and following representations from KPMG, amongst others, ultra-low emission vehicles from April 2017. This will affect a large number of employers and employees, who will see a rise in their tax bills, albeit there will be transitional arrangements for existing schemes. That said, deciding what is salary sacrifice and what is a renegotiation of a package may be subject to some argument!’

Nick Willis, director and solicitor at PwC, said:

‘Salary sacrifice arrangements form part of employees' terms and conditions. Employers will therefore need to look urgently at these arrangements and the contractual promises they have made to assess whether, and how, benefits will be continued post-abolition of salary sacrifice. Difficult issues will arise on who will bear any increased cost in benefit provision and whether an employer has the flexibility to cease providing a benefit that has become prohibitively expensive.’

Matt Dyer, LeasePlan UK's managing director, said:

‘The Chancellor's decision to target cars gained through salary sacrifice is both destructive and disappointing for the motoring industry. We must also remember that going forward, HMRC have been clear that they will make no distinction between salary sacrifice and the practice of offering a cash allowance in lieu of a company car meaning this could affect up to 600,000 drivers. The vehicle rental and leasing industry contributes £24.9 billion a year to the UK economy, and company car leasing schemes are a large part of that success story – with over half of new car sales alone last year going into fleets.
‘We should also stress that these drivers are the hard working essential car users such as tradesman and nurses, most of whom will be the JAMs that the government is so keen to provide for. Whilst we should take some solace from the fact that Ultra Low Emission Vehicles will remain unaffected and any existing arrangements will be protected until 2021, this is complicated by the fact that a new definition has been given for 'Ultra Low' and we will have to wait for the Finance Bill on the 5^th December to see exactly what this means. It is also astonishing that April 2017 has remained as the implementation date, giving providers and employers comparatively no time at all to ensure they can comply with the new rules effectively, leading to unwelcome complexity for very little gain.’

Emma Roberts, Principal in Mercer Marsh Benefits said:

‘Overall, the restrictions to salary sacrifice will impact the way employers are providing benefits however, flexible benefits plan that have been designed in line with current tax legislation will generally be treating many benefits as a benefit-in-kind although further consideration will need to be given to the benefits that have now moved into scope.
‘It was particularly disappointing to hear of further tax rises announced on health-related benefits. Employer facilitated health initiatives provided through salary sacrifice such as health screening and on-site gyms will now become taxable making them less attractive for both employees to purchase and for employers to promote and facilitate.’

Employee Share Schemes

Mark Quinn, head of Mercer’s UK talent business said:

‘It is regrettable that the Chancellor will be removing the tax advantages of ESS. ESS is well regarded and particularly in young companies viewed as a mechanism for increasingly employee engagement by making them shareholders while improving the flexibility of the employment proposition. Removing the tax advantage will undoubtedly reduce the take-up of such schemes. This runs counter to the governments stated intention to improve employee representation/engagement as a means of improving corporate governance and with evidence of employee-owned businesses performing more strongly.’