Kate Upcraft outlines the changes made to salary sacrifice schemes from 6 April, and highlights government clarifications and potential grey areas around the legislation.
The first challenge is to stop using the phrase “salary sacrifice”, which we have used since the tax exemption for employer-supported childcare in 2005 ushered in a new approach to benefits provision. Now we must call such arrangements OpRAs (Optional Remuneration Arrangements). But it’s so much more than a rebranding...
- Type A arrangements are where an employee gives up the right, or the future right, to receive an amount of earnings in return for a benefit. This is how childcare vouchers have been delivered as a salary sacrifice since 2005.
- Type B arrangements are where employees are provided with a benefit rather than choosing to receive a cash allowance, for example choosing a company car rather than a car allowance.
It was a surprise when HMRC outlined that the type B arrangements would be caught by the new rules, as employers had not previously viewed them as a salary sacrifice.
What to do now
Employers and tax advisers need to establish which OpRAs an employer currently has, which ones are unaffected, and which ones are afforded a temporary reprieve where new contracts are in place before 6 April 2017.
There is no change to the treatment of benefits provided in addition to salary as they are not part of an arrangement where the employee gives up some salary. These will continue to be taxed as benefits in kind and subject to Class 1A NIC for the employer.
A few are subject to Class 1 NIC through payroll or are exempt from tax and NIC, such as workplace training or professional subscriptions. Employers can also still provide a benefit fund that employees can spend on a range of benefits which......
About Kate Upcraft
Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.