Optional Remuneration Arrangements
Many employees will have heard the term salary sacrifice and this has become increasingly popular over the years with employees sacrificing amounts of salary in exchange for benefits. These benefits typically save the employee tax and class 1 National Insurance on the amount sacrificed and were used for anything for the purchase of laptops and tablets to improving the specification of the company they received.
From April 2017 the rules have changed and a charge to tax has been introduced to all but a few salary sacrifice benefits. But it hasn’t stopped there. The charge has been extended to flexible benefits where an employee is given a choice between taking a benefit and taking cash.
The salary sacrifice items which will remain unchanged are Cycle to Work Schemes, Childcare Voucher Schemes (although new entrants to Childcare Voucher Schemes will cease in April 2018) and payments into an employer pension scheme.
The areas where there is potential for further tax being payable is where the choice is made between a lower cash or benefit value, for example where a car allowance is taken instead of a higher vale company car. Although it is unlikely that buying extra days holiday will be taxable. Buying holidays is actually a way of taking unpaid leave officially and even HMRC could not consider taxing days which the employee wasn’t actually paid for…
Top tip: Employers should review the wording of any flexible benefits package they offer their employees, including the use of car fuel cards and the repayment of the business mileage. If you would like more information please contact us.
Tags: Accountancy, Payroll