HMRC has announced plans to reduce tax and national insurance contributions (NICs) savings from salary sacrifice schemes.
Salary sacrifice schemes involve employees agreeing to reduce their cash remuneration in return for benefits in kind (BiKs) such as a company car or health insurance. Salary that is contributed (or ‘sacrificed’) by the employee is not chargeable to income tax or liable to NICs.
BiKs are used by employers as a useful tool for rewarding their staff. However there has been an increase in salary sacrifice schemes in recent years, often reducing the amount of income tax and NICs due on the employee’s salary (depending on the BiKs).
The government consultation proposes to change the tax legislation so that BiKs through salary sacrifice will be chargeable to income tax and Class IA employer NICs, even if it is exempt from the following:
- Amount of salary sacrificed
- Cash equivalent set out in statute
This would result in the normal taxable value of BiKs being higher than the amount of salary sacrificed, subject to tax and Class 1A NICs in the normal way.