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
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
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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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