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HMRC publish a consultation on salary sacrifice for the provision of benefits in kind

11th August 2016

HM Revenue & Customs have issued a consultation document regarding proposed changes they are seeking to make to the provision of a benefit via a salary sacrifice.

The proposal is that, with effect from 6 April 2017, where an employee is provided with a tax-exempt benefit in kind in conjunction with salary sacrifice, the exemption will no longer apply. The cash equivalent of the benefit will be treated as general earnings who will be subject to tax on the higher of:

  • The taxable value of the benefit in kind (as prescribed by the legislation and on the basis the exemption is not available); or
  • The amount of the salary sacrificed by the employee.

The consultation does confirm that it is not the Government’s intention to challenge the use of salary sacrifice in respect of:

  • Employer pension contributions;
  • Employer provided pension advice (subject to certain conditions applying);
  • Employer supported childcare and the provision of workplace nurseries; and
  • Cycle to work schemes.

Employers will need to consider the impact the proposed changes to the legislation will present to them in terms of any salary sacrifice arrangements which are already in place, or where any new arrangements are being considered.

Responses to the consultation are invited by 18 October, with draft legislation to follow in the Finance Bill 2017.

If you have any questions please do not hesitate in contacting Nick Bustin, Director of Employment Tax, via email or on 020 7969 5578, or your usual haysmacintyre contact.