Where a benefit is provided by way of a salary sacrifice arrangement the value of the benefit for tax purposes will be the greater of:
- The taxable amount as set out in tax legislation; or
- The amount of the salary sacrificed.
This effectively means there are no income tax or employer NIC savings from operating salary sacrifice arrangements (although employees can still benefit from employee NIC savings).
However, there are two exceptions:
- Some benefits are excluded; and
- There are transitional rules for arrangements in effect before 6 April 2017.
The excluded benefits include childcare, pensions, ultra-low emissions vehicles and intangibles e.g. buying annual leave.
Where an agreement was in place prior to 6 April 2017, the income tax and NIC treatment was protected as follows:
- For company cars (with CO2 emissions above 75 g/km), accommodation or school fees, the earlier of when the salary sacrifice arrangement is renegotiated, revised or reviewed and 6 April 2021; or
- For all other benefits, the earlier of when the salary sacrifice arrangement is renegotiated, revised or reviewed and 6 April 2018.
You may therefore need to look at the provision of benefits under salary sacrifice arrangements quite soon if the tax treatment is due to change in April 2018.
Date: 20th March, 2018
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