Salary sacrifice changes: what do they mean?

Posted 30th Nov, 2016

On November 23rd, 2016, Philip Hammond announced his first budget as Chancellor  –  and the first since the Brexit vote. With it came the announcement of changes to salary sacrifice rules that will impact employee benefit programs across the UK.

So, let’s get down to what these changes actually mean. The headline is that as of April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. This means that employers can still offer these benefit programs, and that money will still come directly off an employee’s payslip, but neither the employee or their employer will receive a reduction in NI payments. Tax will effectively be paid before the money is taken out.

It’s not all bad news, by any stretch  –  changes don’t come into effect for new schemes until April 2017, and existing schemes will be protected until April 2018  –  so there’s still quite a while to make the most of salary sacrifice in its current form. Salary sacrifice arrangements for cars, accommodation and school fees have even longer  –  they will be unchanged until April 2021.

What should employers do?

If you are an employer that provides salary-sacrifice benefits to your workforce, now would be a good time to decided what you need to do to prepare for the new rules.

You may have a difficult decision to make as to whether to continue with the arrangements without the tax advantages or to keep providing the benefits, without the salary-sacrifice element.