Chancellor signals end of the line for salary sacrifice schemes but delay is welcomed

The Chartered Institute of Taxation (CIOT) has concerns over fairness and complexity following the Chancellor’s announcement to tax as cash income all benefits-in-kind received through salary sacrifice, but welcomes the transitional rules for existing salary sacrifice arrangements.

Today the Chancellor announced that the income tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017. As expected, arrangements relating to pensions (including advice), childcare and Cycle-to-Work are excluded from these changes. The Government has also responded to representations from CIOT and others to exclude sacrifice involving ultra-low emission vehicles.  Arrangements in place before April 2017 will be protected until April 2018, and longer term arrangements for cars, accommodation and school fees will be protected until April 2021.

The CIOT has already expressed concern over how the measures will work in practice, and the likely confusion for both employers and employees1.

Colin Ben-Nathan, Chair of the CIOT’s Employment Taxes Sub-Committee, commented:

“We believe that the Government’s proposals to increase the cost of BIKs provided under salary sacrifice and certain flexible benefit arrangements will cause significant practical difficulties for employers, and could result in unfairness for employees. For example, it could be that the same BIK is provided to two employees working alongside each other but, because of how each negotiated their remuneration package, they are taxed differently on their BIKs2. In other words, we will end up with precisely the uneven playing field that the government is concerned about.

“We do, however, welcome the transitional rules. Salary sacrifice and flexible benefit packages for many workers are negotiated on an annual basis, and a change of tax treatment within that benefit period would have created unfairness and confusion.”

Notes for editors

1.       The CIOT’s response to the government’s consultation on salary sacrifice arrangements can be read in full here.

2.       Take the example of two employees. The first employee has been employed for some time and was on a salary of £25,000. The employee chose to sacrifice £1,000 of salary in return for workplace parking (an exempt Benefit-in-Kind). Under the Chancellor’s proposals, that £1,000 may now be taxable as if it were salary. The second employee has just taken up employment, on a base salary of £24,000, with the benefit of workplace parking. The second employee will not be taxed on the £1,000 value of the BIK.

3.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,600 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 (Out of hours contact: George Crozier, 07740 477 374)