COMPLIANCE
flexibility to vary a salary sacrifice agreement more frequently where the benefits are government ’supported’. Childcare vouchers are an example of a salary sacrifice benefit where HMRC accepts that the benefit value can be varied each paydate simply by the employee choosing a different benefit value. Pensions are another benefit which can be varied more frequently without HMRC challenging the arrangements. The reason HMRC allows this greater flexibility for certain benefits is because the underlying benefit being provided isn’t chargeable to income tax. This includes childcare vouchers, pensions, workplace car parking, workplace nurseries, etc. As the benefit isn’t chargeable to tax, the money’s worth principle established in the case of Heaton v Bell doesn’t apply. Do note that car parking falls into this specific category of benefits; however, car parking is a benefit subject to the OpRA rules and is therefore no longer tax effective. Salary sacrifice is a mechanism for an employee to pay for a benefit We often see reference to salary sacrifice being the way in which an employee pays
for a benefit. This isn’t the case as the legal construct of a salary sacrifice for employment law purposes (where the income tax and NICs treatment follows the employment law) is that the employer provides a non-cash benefit, and the employee agrees to reduce their salary by an amount equivalent to the cost to the employer. One of the main considerations when introducing a new benefit is that the employer shouldn’t have any cost associated with the benefit. We often advise on scenarios where an employer is unable to reduce the employee’s salary. For example, where the employee is on maternity leave, sick leave or because of reduced hours during a pay period where the agreed salary sacrifice will bring pay below the NMW. This is typically more of an issue where the benefit provided is for an extended period and is an expensive one such as an electric company car. Changes to the sacrifice values can be made where there is a lifestyle change. However, cost recovery strategies where employees are required to make a payment from their net pay or directly from their bank account, as the employer is unable to process the required salary
sacrifice, can jeopardise the effectiveness of the whole arrangement. HMRC’s position is that for the salary sacrifice to be effective, it needs to be a permanent change to terms and conditions. The change needs to clearly set out what the sacrifice value is and the duration of the reduction to pay / benefit provision. Switching between a salary sacrifice and a payment from net pay can undermine the permanent nature of the contractual change, and could result in HMRC deciding that the whole arrangement is ineffective. It is really important that employers clearly understand how these arrangements work to avoid the many potential compliance issues highlighted above. Implemented correctly, salary sacrifice arrangements continue to offer the ability to provide employees with a benefit package tailored to their own needs and circumstances, and in some cases, to benefit from attractive income tax and NIC advantages. Implemented incorrectly without taking reasonable care could result in the employer having to ‘make good’ any income tax and NIC ’advantage’ received by employees, potentially on a grossed-up basis, turning what was meant to be a win- win into a costly mistake. n
Holiday pay and leave
Duration One half day
CPD 3 points
Case law continually produces changes to employees’ statutory holiday leave and pay entitlement, which are covered in this informative course, along with the various types of leave and the calculation of pay. Understanding holiday pay and leave is vital to be able to: l Calculate how much leave a worker is entitled to l Pro-rate leave entitlement where a worker begins or leaves part way through a leave year l Calculate holiday pay for workers with variable earnings l Make payment for final holiday l Comply with statutory obligations for worker entitlements
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Visit www.cipp.org.uk/training to book your place
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| Professional in Payroll, Pensions and Reward |
Issue 95 | November 2023
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