Many salary sacrifice schemes to be abolished from April 2017

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Salary sacrifice schemes relating to private medical insurance, health screening, gym membership, company cars, mobile phones and white goods will be abolished as part of a Government clampdown on the increasing use of these schemes.

Under salary sacrifice schemes, employees give up part of their salary for a non-cash benefit, with both the company and worker paying less tax and the employer making an NIC saving. An estimated one million employees benefit from such schemes which have increased by 30% since 2009-10. The Chancellor, in his Autumn Statement, has called some of these schemes ‘unfair’ and has put in place plans to abolish them from next year.

Salary sacrifice schemes covering pensions, child care, workplace nurseries, payroll giving, ultra-low emission cars and cycling to work will not be affected. This is because the Government wishes to encourage these particular schemes.

The changes are likely to be implemented as part of the Finance Bill 2017. Schemes already set up before April 2017 will be protected until April 2018. In addition, schemes for cars, accommodation and school fees will be subject to transitional arrangements until April 2021.

This change follows the Government’s public consultation on the proposal to limit the use of salary sacrifice schemes (see our last newsletter).

The plans have received a lukewarm response from business. The CBI is of the view that the measure sends the wrong signal to companies wanting to invest in employee health and wellbeing.

In other Autumn Statement news, from April 2017 new rules will apply to require an agency or intermediary to apply PAYE where an employee contracts with a public sector organisation through a Personal Services Company and where the “IR35” rules would apply. Finally, Employer Shareholder Schemes (ESS) will lose their tax benefits from December 2016 and the Government has announced that it intends to close ESS status to new users altogether “at the earliest opportunity”.

If you would like further advice on this topic please contact David Smedley or Andrew Rayment.