New legislation was introduced in 2017 to tackle the issue of salary sacrifice arrangements where such arrangements result in a loss of tax to HMRC.
This affects employers who offer benefits in kind to employees, or allowance payments, particularly where there is an element of salary sacrifice or a flexible benefit package. Generally, it will apply where the option open to the employee is to take cash or a benefit.
Taking a common example, where an employee is offered the opportunity to have a company car by their employer, or instead can take a car allowance payment.
Even if the employee opts to choose the company car, if the cash allowance given up is higher than the car benefit value (worked out by normal benefit rules), it is the cash allowance that determines the tax and NIC that would become due.
Optional Remuneration Arrangements rules
The rules around this are complex and many employers are unintentionally being caught by them as offering employees a choice on benefits is a very common scenario.
Generally however, most pension contributions, childcare and cycle to work schemes are excluded from these new rules. It is understood that the option to purchase additional holiday will also not be caught. There are a number of other more niche exemptions in the legislation.
Guidance for employers
Employers need to take much greater care going forward when making a new offer to an employee. As with so much of new tax legislation, whilst the ‘headline’ facts are easy enough to understand, the details are often where the difficulties lie.
We are recommending that all employers review all benefits offered to employees to determine which might fall within the new rules. This may mean reviewing the payroll as well for both small
and mature businesses
It is then necessary to update reporting processes going forward to ensure such arrangements are identified and recorded accordingly. Employees affected will also need to be informed, particularly in cases where their choice will now result in a higher tax liability.
Many employers are also updating staff handbooks to deal with these changes.
Employer’s will normally need to report of the value of benefits on an annual P11D form for each employee that is affected. These new rules have applied for 2017 and therefore will affect the P11D returns due by 6th
For those employers that payroll benefits, immediate action may be necessary.
For more information on the tax changes, contact Wisteria’s tax team on 020 8429 9245 or email us at [email protected]