Employers commonly provide employees with the opportunity to buy certain benefits through salary sacrifice. Before April 6 2017, many of these benefits would have allowed both the employer and employee to save on income tax and National Insurance contributions.
However as the Finance Bill 2017, which came into force this month, removes the income tax and National Insurance contribution advantages of some salary sacrifice arrangements, certain benefits have now lost these savings. These changes will result in increased costs for both employees and employers, impacting flexible and voluntary benefit schemes where employees pay for the benefits via salary sacrifice.
Any benefit, such as group income protection, mobile phone contracts, car parking and computer purchases, paid for by salary sacrifice is now subject to the new law. Though there are a few exceptions, these include:
- contributions to a registered pension scheme
- employer funded pension advice
- childcare vouchers
- cycle-to-work schemes
- ultra-low emission cars of 75g CO2 / km or less
When to act
Where your business has benefits set up via a flexible or voluntary arrangement that will be impacted by the changes, if you haven’t done so already, you need to be making arrangements to stay legal.
Your HR team needs to be aware that they will be impacted by the changes at different dates, depending on when an employee’s salary sacrifice contract starts, renews or is modified. These dates will be known as trigger points; the point at which benefits will be subject to the new rules on salary sacrifice.
At an employee level, trigger points will usually occur when they chose their benefits during their flexible or voluntary selection window. However, if an employee does not start or modify a salary sacrifice contract before 6 April 2018, this date will become the trigger point for their benefit.
For new employees that have joined the business after 6 April 2017, you will need to use the new rules as this is a new contract.
Practical changes to make
You should already be thinking about making changes to your flexible and voluntary platforms in order to reflect the changes. This may include providing an explanation text box for impacted benefits, to give employees as much information as possible about how the income tax and National Insurance treatment of these benefits has changed.
Furthermore, you should be seeking assistance from your payroll and IT providers in order to change the way National Insurance contributions and income tax is calculated.
Communication is key
As a HR professional or business owner, you have an obligation to inform your employees of the changes. Using communication tools and opportunities such as emails, team meetings and one-to-one meetings will help notify employees of the changes.
If these communications have not yet been made, it’s vital to ensure these conversations are being had before your company’s next benefit window opens between April 2017 and April 2018. This will provide employees with a greater understanding about how the new salary sacrifice laws will impact their benefits, in plenty of time to make their voluntary selections.
This is obviously a very complex area that your business may need help with. Seeking the assistance of a professional such as a financial adviser or employee benefits consultant will help businesses ensure they are clear about potential changes, all in time for the relevant trigger points.
In a nutshell
Where benefits are paid for through salary sacrifice, National Insurance Contributions and income tax treatment changed on April 6. Although you may not be affected immediately, you should be making arrangements that will prepare you for when new employees join the business and benefit contracts start or renew.
It’s also important that you take care of your people, by educating them about the changes to salary sacrifice and how this will impact their benefit selections.