It's fair to say that Philip Hammond's first and final, Autumn Statement as Chancellor wasn't the most radical in recent memory. But, one of its more revolutionary proposals came in the form of changes to the taxation of benefits in kind and salary sacrifice schemes.

Salary sacrifice arrangements are essentially an agreement between an employer and employee to change the terms of their contract, reducing the latter's entitlement to cash payments. Instead, they take some of their pay in the form of non-cash benefits. 

It's likely to affect millions of employees across the UK – including thousands in Scotland.

In essence, from April 2017 tax bills on many benefits in kind will increase, in some cases significantly. The new rules will apply whenever a benefit is provided in conjunction with salary sacrifice however it will come as a surprise to many that the new rules will also apply in cases where an employer offers employees a choice between a benefit and a cash alternative..

One of the reasons for the change was the perceived tax cost of salary sacrifice schemes; however, the measures are only anticipated to raise £85 million in 2017/18 and £235 million per annum thereafter.

This is partially because there are exemptions to take into account and a phased introduction. A limited range of benefits – including pension contributions (including advice), ultra-low emission vehicles (ULEVs), cycles and childcare vouchers – will not be impacted by the new rules and can continue to be provided under salary sacrifice arrangements. Exempting ULEVs from the changes fits in with HM Treasury's proposals to encourage investment of £390 million in this area.

Where the new rules do apply, the tax due will be based on the higher amount of the salary sacrificed or the cash alternative. The impact of the changes will be greater on benefits with low statutory tax values, such as benefits that are exempt from tax – this includes workplace gyms, car parking, and death in service policies. 

Let's take gym membership as an example of this change in practice. A basic-rate employee sacrifices £30 a month to use their workplace gym, which is currently a tax-free benefit. From April 2017, they will pay additional tax of £72 per annum, with their employer paying just under £50 per annum of National Insurance Contribution. The workplace gym exemption will no longer apply to the employee as the benefit is provided through salary sacrifice.

Many arrangements cover multiple years and as such employers and employees alike will welcome the announcement that cars, accommodation, and school fees commenced before April 2017 will be taxed under the existing rules until April 2021. However, other benefits will only be protected until 2018. Many employees will be committing to salary sacrifice arrangements between now and April 2017; for them, the current rules will continue to apply until 2018 or 2021, as the case may be.  But all new agreements entered into after April 2017 will be subject to the new rules outlined by the Chancellor today.

Like any changes, some of those affected will need to act in the near future. The news will give employees who previously deferred company car (other than ULEVs) and benefit decisions until the government confirmed its decision, an additional four months until 6 April 2017 to enter into any new arrangements.  There is no deadline for cars qualifying as ULEVs, which will continue to be taxable under existing rules whether or not provided with salary sacrifice, as part of a wider initiative to encourage investment in ULEVs.

These revised arrangements will ultimately result in many employees paying more tax.  Mr Hammond did not make any other significant changes in tax rates and restated the UK Governments intention to increase the personal allowances and increase the basic tax rate band over the next number of years.  For those in Scotland however, it will be important to see what variances the Scottish Government will introduce in its Budget on 15th December which may, for the first time, see a differentiation between the amounts of income taxes paid in Scotland versus the rest of the UK.

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