We have already explained the recent Autumn Statement in a variety of ways: blog-posts, a video, an infographic and a briefing document.
However, at the end of the calendar year, as the new tax year draws closer, we thought we’d also produce a simple guide to one of the Autumn Statement’s most significant announcements – the changes to Salary Sacrifice schemes.
LeasePlan Guide to Salary Sacrifice Q&A
What is the Government doing to Salary Sacrifice schemes?
The Government is changing the tax treatment of benefits received through Salary Sacrifice schemes. From April 2017, most such benefits will be subject to Income Tax (for the employee) and National Insurance Contributions (for the employer). These levies will be imposed on the highest of either the salary sacrificed or the taxable value of the benefit itself.
Why is it doing this?
In the Autumn Statement, the Government said the change is ‘to promote fairness and broaden the tax base’. The Chancellor, Philip Hammond, spelt out the ‘fairness’ argument in his speech: ‘The majority of employees pay tax on a cash salary,’ he said, ‘but some are able to sacrifice salary and pay much lower tax on benefits in kind. This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.’ HMRC expects to get an extra £260 million a year from the changes.
Does that include Salary Sacrifice cars?
Yes. New Salary Sacrifice car schemes will be subject to Income Tax and employer’s NICs from April. Today, a salary sacrifice car is taxed as a company car and the employee does not pay income tax on the salary sacrificed. From April 2017, if the salary sacrifice amount is higher than the company car tax, then this will be used for the basis of taxation and income tax is due on the sacrifice. Employee National Insurance remains unaffected. However, ULEVs will be exempt from these changes.
What are Ultra Low Emission Vehicles?
Ultra-Low Emission Vehicles: any car that emits less than 75 grams of carbon dioxide per kilometre. That mostly means electric cars, whether plug-in or hybrid.
What about existing Salary Sacrifice schemes?
Any Salary Sacrifice arrangements already in place before 6th April 2017 will be protected from the changes until April 2018 or – in the case of cars, school fees and accommodation – April 2021. Guidance is being sought as to whether this means orders in place or vehicles delivered.
Are there any other exceptions?
Pension contributions and advice, childcare and cycle-to-work schemes will all be exempt from the changes, along with ULEVs.
Does this apply to cash-alternative car schemes?
Yes. HMRC has made clear that it will treat schemes where employees have the option of choosing between a company car and a cash alternative just the same as Salary Sacrifice car schemes.
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For further information please speak to your LeasePlan Account Manager or a member of the LeasePlan Consultancy Services team on :
Tel: 0344 371 8032