Salary-sacrifice employers urged to review

Umbrella companies with “wide” salary sacrifice arrangements should review them to ensure the benefits on offer are not the ones being black-marked by the taxman, recommends PwC.

So-called ‘good’ benefits, those which the government approves of, should also be checked to ensure they are working as intended, advises PwC employment partner John Harding.

His advice relates to Budget 2016 saying the government is “considering limiting the range of benefits” via salary sacrifice, except on pension saving, childcare and health-related perks.  

“Employers will be delighted to see that pension savings, childcare and cycle to work are clearly in the category of the ‘Good’ salary sacrifices,” Mr Harding said.

“[They should] ensure that the benefits [they offer] do not fall into HMRC’s ‘Bad’ salary sacrifices and that they continue to operate as intended and are not deemed ‘Ugly’”.

Just to be given time to review before the government acts will relieve employers, as salary sacrifice is a card HMRC marked a while ago. But FreeAgent thinks uncertainty remains.  

“For ‘Ltds,’ the government hasn't said what they'll do in respect of this yet, just that they're considering restricting the benefits available,” the firm said. “There's nothing concrete - yet.”

As to its motivation to act, the government pointed out in the Budget that salary sacrifice users give up salary for benefits that are often subject to relief from income tax and NICs.

Such arrangements, estimated to the cost the Treasury some £5bn, have increased by 30% since 2010, in terms of the number of employers asking HMRC to use them.

“It's clear that when it comes to salary sacrifice HMRC take a view that there is a ‘Good, the Bad and the Ugly,’” said Mr Harding. “[But] the devil will be in the detail”

Editor's Note: Related Reading -

Why it's all change for umbrellas from April

Umbrellas wary about the end of dispensations

2015 Autumn Statement: top 10 contractor announcements

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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