MEMBERSHIP INSIGHT
Your views on salary sacrifice
Samantha Mann, CIPP senior policy and research officer, reviews perceptions and reactions to the proposals
O ver the years I have been involved with many different consultations on a wide range of topics, but it is fair to say that the proposals put forward for salary sacrifice – specifically the proposals for adapting the tax system to fit where salary is exchanged for a benefit in kind (BiK) – seemed to ignite passionate response from payroll and employment tax professionals that almost no other subject has done. In fact, I think it is fair to say it even overshadowed the big consultation on the block – making tax digital. So, what is the proposal? In a nutshell, the proposal sought to change tax legislation so that where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer National Insurance contributions (NICs), even if it is normally exempt from tax and Class 1A NICs, at the greater of: ● the amount of salary sacrificed, and ● the cash equivalent set out in legislation (if any). This would mean that where the normal taxable value of the BiK is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way. Excluded from consultation (i.e. BiKs that ● employer-provided pension advice based on the recommendations of the financial advice market review ● employer-supported childcare and provision of workplace nurseries, and ● cycles and cyclist’s safety equipment which meet the statutory conditions. Time will tell as to whether the arguments put forward for further ‘health’ related BiKs were successful in achieving any further additions to the ‘in’ list but it is fair to say that we received a sense that a significant amount of evidence and data would be needed to make the argument that wider will remain ‘in’) currently include: ● employer pension contributions
this new process. Furthermore with only 4.5 months available at the time the consultation closed, we have no final decision, no draft regulations, no software specification for supporting any relevant changes that will impact employers who have taken up voluntary payrolling. For employers whose reward scheme runs from January to December, their employees are making decisions now, and so for this timeline that guidance needs to be accurate and available now. Roundtable Earlier in 2016, a policy Think Tank on salary sacrifice was held and saw HMRC meet with CIPP payroll professionals to discuss the issues that would concern the profession in the event of change to salary sacrifice. Following up this earlier meeting a further roundtable was held during the consultation to allow payroll professionals an opportunity to share their views of the proposals with HMRC. One point became clear during discussions that hadn’t come out through the survey is that, for some employers in some sectors, salary sacrifice is used almost exclusively for pretty much anything that an employee might desire – with payslips running to three pages not uncommon for these employers. And so, for many payroll professionals, any proposal that looks to disincentivise employers from engaging with salary sacrifice would be welcomed, in the full knowledge that this would significantly simplify the payslip. Timing for employers who haven’t engaged with voluntary payrolling was less of an issue – as confidence was high that there would be sufficient time for the software community to respond to change to the P11D return. However, concerns about grandfathering were high and again we came away with a reasonable expectation of a sensible solution being found. Annual Conference discussion and debate An opportunity for payroll professionals to
savings could be achieved by government by the inclusion of health screening, gym membership, private medical health insurance and the like. The message from HM Revenue & Customs (HMRC) was ‘we are listening’. It is understood that the consultation received in the region of 350 responses, and so it will be interesting to see how much HMRC truly were ‘listening’ to the views and experiences of stakeholders. Recognising that this was a subject of great interest to CIPP members and the wider payroll profession, the CIPP policy team looked to gather views through a variety of sources. Survey We ran a survey in order to gather as wide a viewpoint as possible. The survey went live on the 16 September and closed on the 12 October and views in some instances were polarised. However, there were some consistent points raised: ● Administrative burden – it is acknowledged that delivering a reward strategy around salary sacrifice, whilst often resulting in savings in NICs, does inevitably bring with it a measure of burden. ● Complexity – “how will this work in practice?” was a common question, and the call for revised detailed guidance to enable employers to be able to communicate the change and impact to their employees is a priority for survey respondents. ● ‘Grandfathering’ – or some form of process that recognises that many reward schemes are arranged over a set period of time; the shortest example given was a year, the longest five years, with a common three- year period for car leasing arrangements. Any transition ideally will build allowance for contracts that are ongoing at a given point in time once the final proposals are announced. ● Timing – this was by far the biggest area of concern. April 2017 is too soon to start
...passionate response from payroll and employment tax professionals...
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 10
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