HMRC have launched a ‘Consultation on salary sacrifice for the provision of benefits in kind’.  This proposes to limit the tax and NIC advantages for certain benefits in kind (BIKs) provided under salary sacrifice and similar arrangements.

The Government first expressed concerns about the rising cost to the Exchequer of salary sacrifice in the Summer Budget 2015.  In particular, HMRC has seen a growth in the use of these schemes to deliver BIKs in recent years. 

To counter this, they propose that BIKs provided under salary sacrifice will be chargeable to income tax and Class 1A NICs on the greater of:

  • The amount of salary sacrificed; and
  • The cash equivalent set out in the benefits code (if any).

This will apply even if they BIK would normally be exempt (e.g. work place parking).

The proposed changes will apply to benefits provided under both:

  • Salary sacrifice arrangements, and
  • Flexible benefit packages where there is a cash alternative.

Employers wanting to offer BIKs will still be able to, but the tax and employer’s NICs advantages will be reduced.

The following won’t be affected by the proposed changes:

  • Any BIKs currently offered on top of salary
  • Intangible benefits that are not taxed (e.g. flexible working or extra annual leave).
  • Payroll giving.
  • Employer pension contributions and pensions advice.
  • Childcare and workplace nurseries.
  • Cycles and safety equipment under the cycle to work scheme.

The consultation runs to 19 October 2016.  The intention is then to introduce legislation in Finance Bill 2017 with the changes applying from 6 April 2017.


Our subscriber guide: Salary sacrifice schemes

Consultation document: Consultation on salary sacrifice for the provision of benefits in kind