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Employment tax consultations – our response

28th October 2016

haysmacintyre has recently responded to two HM Revenue & Customs (HMRC) consultations in respect of PAYE Settlement Agreements and salary sacrifice. Both consultations will have an impact on the majority of employers.

PAYE Settlement Agreements                                  

It is not uncommon for employers to use a PAYE Settlement Agreement (PSA) to help manage the tax and National Insurance liabilities due on expenses which are strictly taxable on the employee, but the employer agrees to pay the resulting liabilities directly to HMRC.

HMRC are proposing a number of procedural changes to PSAs, some of which are very practical, as well as the nature of those expenses which can be included within a PSA.

No date has been given as to when any changes are due to come into effect, although further comment may be included within the forthcoming Autumn Statement.

Salary sacrifice

The government is proposing significant changes to salary sacrifice (including flexible benefit) arrangements which many employers use to help deliver benefits to employees in a tax efficient manner. If the proposals remain unaltered then favourable salary sacrifice arrangements will be limited to the following benefits:

  • employer pension contributions;
  • employer provided pension advice based upon recommendations of the Financial Advice Market Review;
  • employer supported childcare and the provision of workplace pensions; and
  • cycle to work scheme arrangements.

Under the current proposals where other benefits are provided via salary sacrifice, the benefit will be subject to tax and National Insurance on the greater of:

  • the amount of salary sacrificed; and
  • the cash equivalent set out in statute.

We have expressed our concern that such an approach will present employers with a number of challenges, especially in terms of recruitment and staff retention. We feel the consultation document does not fairly reflect:

  • reasons why the benefit is being made available in the first place;
  • the nature of the benefit provided; and
  • the “life-style” choices an employee has made before entering into the salary sacrifice.

The proposed changes are due to come into effect from 6 April 2017. Given the nature of the questions raised as part of the consultation we believe there are too many issues which need to be resolved and leaves employers and employees with little time to adapt to the proposed changes. Hopefully, common sense will prevail and the government will enter into further consultation and defer implementing any new legislation.

Contact us

If you should have any questions, please contact Nick Bustin, Director of Employment Tax on 0207 969 5578 or via email, or Jo Hennessy, Senior Manager on 0207 969 5579 or via email