Salary Sacrifice – The Effects of the Chancellor’s Autumn Statement
Fears that changes to Salary Sacrifice schemes would remove all the tax and national insurance advantages that they bring prove to be unfounded, as full details of the proposed changes announced in the chancellor’s autumn statement were released.
The key elements are as follows:
Changes will only apply to Employee Agreements signed on or after 6th April 2017All current leases AND those signed before April 6th 2017 will be exempt from changes until 2021 or their expiry date if soonerEmployer Class 1 national insurance savings will disappearEmployee national insurance savings will still remain after April 2017Tax will be paid by the employee on either the gross salary sacrifice or the Benefit in Kind, whichever is the greaterULEV’s (Ultra Low Emission Vehicles with CO2 emissions of 75g/km or less) will be exempt from the changes‘Cash for Car’ schemes are also affected
The following examples highlight how in practice the changes will affect the cost to employees. TCH Salsa estimate that 70% of vehicles will be unaffected by the forthcoming changes and many that are affected will only see costs increase by an average of £10 per month.
Example 1 – Monthly Costs
Vehicle: Citroen C1 Hatchback 1.2 Pure Tech Feel 5dr Taxable List Price: £11,070.00 CO2 Emissions: 99 Combined MPG: 65.7 Transmission: Manual
Example 2 – Monthly Costs
Vehicle: Nissan Juke Hatchback 1.2 DiG-T Acenta 5dr Taxable List Price: £16,080.00 CO2 Emissions: 128 Combined MPG: 49.6 Transmission: Manual
In example 1 above, there is currently an overall tax saving of £19.38 over and above the tax payable through BIK, so the tax payable from April 2017 will be the greater figure of £52.59. However, in example 2 there is no overall tax saving so the cost to the employee will remain the same.
Currently, the employer enjoys a Class 1 national insurance saving on the amount of salary sacrificed, but under the new treatment HMRC will recover this saving as the employer must pay Class 1A national insurance on the salary sacrificed or the BIK, whichever is the greater.
Where employers offer their employees the option of a company car or a cash alternative, the employee will in future be taxed on either the cash amount paid or the benefit in kind of the equivalent vehicle they would have been offered on the company car program, whichever is the greater. This may well signal the demise of ‘cash allowance or car’ as in most cases the BIK on the company car will be greater.
The message to employees should be that they can still take advantage of this extremely cost effective benefit before the tax changes come into effect by ordering their vehicle on the TCH Salsa website as soon as possible, and sign and return their Employee Agreement before April 2017.
For more information about salary sacrifice and the changes that will come with the Autum Statement, contact us on 0333 800 1451 and we will be happy to help. Alternatively, you can click here to contact us online.