Changes to both the salary sacrifice and ‘making good’ aspects of benefits-in-kind for both employers and employees are under consultation by HMRC but pensions and health-related benefits have been ringfenced
In a 17-page consultation, the government is considering limiting the range of benefits-in-kind that attract income tax and National Insurance Contributions advantages when provided as part of salary sacrifice arrangements.
It is also proposing in a 26-page document to align the dates by which an employee has to make a payment to their employer in return for a benefit-in-kind they receive, in order to ‘make good’.
Both plans were announced at the Budget 2016.
The purpose of the salary sacrifice consultation is to explore potential impact on employers and employees should the government decide to ‘change the way the benefits code applies when a benefit-in-kind is provided in conjunction with a salary sacrifice or flexible benefit scheme’.
Among benefits considered in the consultation are mobile phone contracts and the provision of workplace parking.
In an example given in the document, the government calculates the loss to the Exchequer can amount to as much as £321 per basic rate taxpayer, £391 per higher rate taxpayer and £426 per additional rate taxpayer.
Some exemptions, particularly those under Income Tax (Earnings and Pensions) 2003 (ITEPA), are under consideration in the consultation. The document provides an example relating to salary sacrifice for workplace parking.
In the example, an employee agrees to a £50 a month reduction in their salary for a period of 12 months. Until 5 April 2017 there will be no tax or Class 1A NICs due on the cost of the workplace parking because this is subject to an exemption from tax under s237 of ITEPA. From 6 April 2017, the exemption under s237 of ITEPA will be dis-applied and there will be a taxable BiK equal to the amount of salary sacrificed. In addition, a corresponding Class 1A NICs liability will arise for the employer on that same amount.
Several health-related benefits-in-kind such as cycle to work are not included in the consultation as the government wishes to encourage their use. However, the consultation makes clear it ‘does not prevent employers from providing benefits-in-kind to their employees through salary sacrifice, but it will remove the tax and NICs advantages that come from doing so’.
Alongside that, views are not being sought on salary sacrifice in relation to employer pension contributions; employer-provided pension advice and; employer-supported childcare provision.
The ‘making good’ consultation concerns the scope for aligning the rules for benefits-in-kind with those which apply to ‘making good’ where the employer accounts for the benefit-in-kind through PAYE.
There are different dates set out in legislation for making good on different benefits-in-kind in order to reduce or remove the tax charge. For some benefits in-kind there is more than one date for making good in legislation, whilst for other benefits-in-kind there is no statutory date.
The car fuel benefit charge is one of the areas of confusion, as there are different dates by when an employee is required to make good. Stakeholders have been very critical of the regime, particularly given that HMRC guidance is inconsistent with statutory dates.
For other benefits-in-kind, such as private medical insurance, making good must take place before the end of the tax year where the employer accounts for the benefit-in-kind in real time through PAYE.
The aim of the ‘making good’ consultation is a ‘simpler and clearer system that makes it easier for employers and employees to understand their obligations’, the document said.
Both consultations close on 19 October 2016.
The consultation on salary sacrifice for the provision of benefits-in-kind is here.
The consultation for the alignment of dates for ‘making good’ on benefits-in-kind is here.