May 2018 - Tax & NI: Salary Sacrifice Schemes End

Tax & NI: Salary Sacrifice Schemes End

Salary sacrifice is a contractual arrangement under which an employee gives up a right to part of their salary, usually in return for a non-cash benefit in kind such as a mobile phone, company car or healthcare. Many of these benefits have been exempt from employee's class 1 national insurance contributions and tax. The employee saves NI and tax by receiving these benefits instead of part of their pay and the employer does not have to pay a Class 1 NIC contribution on this sum.

From 6 April 2017 the tax and some national insurance advantages were removed from these salary sacrifice schemes, which are now called Optional Remuneration Arrangements(“OpRAs”). Most benefits are nowsubject to income tax and to employer's class 1A NIC, however, some benefits in kind do remain exempt from tax and NICs, i.e:
• payments by employers into registered pension schemes;
• employer-provided pensions advice;
• childcare vouchers, workplace nurseries and directly contracted employer-provided childcare;
• cycles and cyclists' safety equipment (including the cycle to work scheme);
• cars with CO2 emissions of 75g/km or less.

OpRAs for school fees, accommodation, and cars with emissions above 75g CO2/km will become subject to tax and employer’s NIC on 6 April 2021 (or sooner if an existing arrangement ends or is changed, modified, varied or renewed).

Other benefits included in salary sacrifice and similar schemes, such as medical insurance, gym membership, mobile phones and car parking are now subject to tax and employer's class 1A NIC but remain exempt from employee's class 1 NIC.

The value of the benefit for tax and NIC purposes will be the cash foregone (the salary sacrificed) or the cost of the benefit to the employer, whichever is higher.

Unless the employer was registered for payrolling of benefits (paying tax on benefits and expenses through the payroll) during tax year 2017-18, all benefits provided during that year, including those provided under an OpRA, must be reported to HMRC on form P11D by 6 July 2018. Employers who payroll benefits must submit form P11D(b) by that date.

For detailed information about tax and national insurance on benefits and expenses, registering for voluntary payrolling and what needs to be reported on P11D or P11D(b) see https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll, and HMRC's article https://www.gov.uk/government/news/employers-need-to-provide-details-for-all-benefits-in-kind.