Salary sacrifice schemes are popular with both employers and employees as a way of helping staff to save money and spread the costs of certain items. They work via a non-cash benefit that comes out of the employee’s pre-tax pay – so the employee saves the tax and the national insurance cost. The employer also saves their portion of national insurance contribution.
However, from the start of the next tax year on 6 April, most of these current tax-free schemes will become liable to tax. The salary sacrifice schemes that will be affected by the tax change include:
work related training
health screening checks
mobile phones and computers
There are some exemptions: pensions childcare vouchers, cycle-to-work, and ultra low-emission car schemes will be protected.
Existing schemes will stay tax free until April 2018. This is extended to April 2021 for schemes relating to cars, accommodation and school fees.
If you are an employee with the option to join a salary sacrifice scheme, make sure you take it up before 4 April 2017 so you can enjoy the tax exempt status for a little longer.
If you are an employer, you will need to start planning for how you deal with salary sacrifice schemes from April 2017 and the associated increase in national insurance costs.