Salary Sacrifice Changes: Beginning April 2017

29/03/2017 by James Malia Posted under Employee Benefits

Changes to the way salary sacrifice works will come into effect on Thursday 6th April. With this deadline date fast approaching, what does it mean for employers and employees?

Quite simply, from this date onwards a number of salary sacrifice schemes will no longer be eligible for reduced tax and NI payments, with the sacrificed portion of an employee’s salary coming out of their wage slip after tax, rather than before. This will also mean that employers will no longer benefit from reduced NI bills.

With just days to go, we have provided a full run-down of everything you need to know so you’re prepared for the changes.

When were the changes announced?

The changes were first announced in the government’s Autumn Statement back in November by Chancellor Phillip Hammond.

Commenting on the decision at the time, James Malia, Director of Employee Benefits at Sodexo Benefits and Rewards Services said:

“The industry now needs to develop innovative ways for employers to deliver attractive and innovative benefits to their workforce through an alternative mechanism. Even without tax efficiencies, many of the benefits in question can still be of great value to employees, and this should not be overlooked.

“Providers must work with businesses to establish a sustainable method of funding these important schemes, which improve the day to day lives of employees.”

What’s changing in April?

Come 6th April, a large number of salary sacrifice schemes will no longer provide tax savings to employees. While employers can still offer salary sacrifices to their employees once the changes come into effect, the new rules mean that most salary sacrifice schemes will be subject to the same tax as cash income.

The schemes that will be affected and no longer provide these savings include:

  • Accommodation
  • Car parking
  • Health screening
  • Learning
  • Non-ultra-low emission cars
  • Parking
  • Phones and computers
  • School fees

The following four schemes are exempt from April 2017’s changes:

  • Childcare vouchers
  • Cycle-to-work schemes
  • Pensions
  • Ultra-low emission cars that emit less than 75g of C02 per kilometre driven, and are capable of 10 miles or more of zero-emission driving

What’s changing next?

What’s important to remember is that these rules will only be applicable to new programs launched from 6 April 2017. Salary sacrifice schemes which are already up and running will not be affected by the new changes until April 2018 – or if your scheme renews before April 2018. The four exemptions discussed above will also remain exempt after April 2018.

So if you’re currently offering a salary sacrifice scheme that will not be renewed before April 2018, you and your employees will continue to enjoy tax and national insurance savings for a while yet.

What’s changing in the future?

With salary sacrifice schemes changing from April and other schemes to be affected over the next four years, there is always room for the opportunity to improve or introduce similar schemes.

It’s also worth noting that a number of key benefits such as non-ULE cars, accommodation and school fees will also be exempt until April 2021 – so there’s an extra four years of savings. This means employers and employees alike are still in line to make savings over the next few years, despite the new rules.

What does this mean for employers?

If you’re an employer that provides salary sacrifice benefits, we strongly recommend you contact your provider so they can advise you on what to do in response to the rule changes if you haven’t already.

Employers can still offer great benefits, allowing employees to spread the cost of more expensive services – such as travel, tech or healthcare – over a year.

As mentioned, Cycle-to-Work schemes will be exempt from the upcoming changes in April, and have been shown to have positive health effects, with 89% of Cycle-to-Work participants saying cycling helped them get fitter.

The financial implications stretch further for employers, with Cycling UK reporting that Cycle to Work schemes generate at least £72 million in economic benefits for the UK economy in terms of health every year. The same report also found that, on average, regular cycle commuters take less time off sick from work than colleagues who do not cycle to work.

While other benefits will cease to offer tax and NI savings in the same way, it should be clear how providing health and wellbeing support for employees pays dividends far beyond immediate financial savings. Benefits such as mental health support or health screenings shouldn’t be lost just because they no longer help reduce the tax bill – a happy workforce is more engaged.

For example, with stress accounting for 37% of all work-related ill health cases and 45% of all working days lost due to ill health, improving employee wellbeing and offering items such as lifestyle support can have a massive impact.

What’s changing for parents?

Childcare vouchers will not be affected by the changes that are introduced in April 2017. However, in the future childcare vouchers will close to new applicants in April 2018 to make way for the government’s Tax-Free Childcare.

Those who currently use childcare vouchers can continue to use them indefinitely past the April 2018 deadline, even after Tax-Free Childcare comes in. So if you have employees who are eligible for childcare vouchers that haven’t signed up yet, it’s essential to encourage them to do so before the deadline. Even if they don’t need childcare vouchers yet, your employees can join a scheme and begin purchasing for later use.

If you need more information about the impending changes to salary sacrifice, visit our salary sacrifice changes hub. Alternatively, you can contact us with any questions or concerns.

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