Millions to be hit by change to benefits in kind
From April 2017 tax bills on many benefits in kind will increase, in some cases significantly. The new rules will apply whenever a benefit is provided in conjunction with salary sacrifice.
“It will come as a surprise to many that the new rules will also apply in cases where an employer offers employees a choice between a benefit and a cash alternative, if the benefit is not wanted,” said Ian McCall, global employer services partner, Deloitte in Scotland.
“One of the reasons for the change was the perceived tax cost of salary sacrifice schemes; however the measures are only anticipated to raise £85 million in 2017/18 and £235 million per annum thereafter.”
A limited range of benefits including pension contributions, ultra-low emission vehicles (ULEVs), cycles and childcare vouchers will not be impacted by the new rules and can continue to be provided under salary sacrifice arrangements. Exempting ULEVs from the changes fits in with HM Treasury’s proposals to encourage investment of £390 million in this area.
Where the new rules apply, the tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.
The impact of the changes will be greater on benefits with low statutory tax values, such as benefits that are exempt from tax, including workplace gyms, car parking and death in service policies.
A basic rate employee sacrifices £30 a month to use their workplace gym, currently a tax free benefit. From April 2017, they will pay additional tax of £72 per annum, with their employer paying just under £50 per annum of NIC. The workplace gym exemption will no longer apply to the employee as the benefit is provided through salary sacrifice.
Employers and employees alike will welcome the announcement that cars, accommodation and school fees provided before April 2017 will be taxed under the existing rules until April 2021. However, other benefits will only be protected until 2018.
Many employees will be committing to salary sacrifice arrangements between now and April 2017; for those the current rules will continue to apply until 2018 or 2021 as the case may be. But all new agreements entered into after April 2017 will be subject to the new rules.
The news will give employees who previously deferred company car and benefit decisions until the government confirmed its decision, an additional four months until 6 April 2017 to enter into any new arrangements.