HMRC has revealed plans to limit tax and national insurance savings from salary sacrifice schemes.
In a 17 page consultation document released this week, HRMC stated that the government does not believe benefits-in-kind, effectively paid for by employees through reductions in gross salary, should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.
Plans were unveiled to change tax legislation so that where a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions, even if it is normally exempt.
Among the salary sacrifice schemes set to be hit are life insurance policies and mobile phone contracts, which will become taxable on employees. However, the paper did state that not all current schemes will be hit by the changes to the rules.
The purpose of the salary sacrifice consultation is to explore the potential impact on employer and employees should the government decide to implement these changes.
Several health-related benefits-in-kind such as the cycle to work scheme are not included as the government wishes to encourage their use. The consultation is also not asking for views on employer pension contributions, employer-provided pension advice and employer-supported childcare provision.
The consultation will run from 10 August 2016 to 19 October 2016 and the government is interested in hearing from employers, trade organisations and other interested parties who may be affected by the proposed changes.
The consultation on salary sacrifice for the provision of benefits-in-kind can be viewed here.