Salary Sacrifice – changes ahead

You may be aware that the Government has removed the tax advantage of salary sacrifice (known as optional remuneration arrangements - ORA) in respect of certain non-cash benefits.
 
ORA will apply to certain arrangements where the employee, in return for giving up a right to cash, receives a benefit or has the option of receiving cash pay instead of a benefit.
 
How does the tax charge work?
 
Basically, where the employee has the option to receive cash or benefits, then the higher of the cash equivalent of the benefit in kind or the amount of salary foregone will be subject to tax and national insurance.
 
Examples
 
An employee receiving a cash allowance instead of a company car would be caught as an ORA. This will be particularly felt by those employees who give up a relatively high cash allowance for a low CO2 emission car (CO2 > 75 g/km), to which a low taxable benefit is attached. In this case, they may be subject to tax on the cash allowance given up, even though they haven’t received the actual cash.
 
ORA could also apply where the employer’s policy is to reimburse employees for business mileage at less than HMRC authorised mileage rates. This mileage allowance at these rates can be paid tax free and the employee may have agreed with the employer to sacrifice some taxable salary in return for an increase in the business mileage rates to the HMRC limits. In this instance, there is no additional cost to the employer (as the increase in the mileage allowance is met by the decrease in salary) but the employee benefits by saving tax on the salary given up but not being subject to tax on the increased mileage allowance payments. Such an arrangement will now be caught by the new rules.
 
Some exemptions will remain, such as:
 
Pension contributions
Childcare vouchers
Cycle to work schemes
Company cars with a CO2 rating below 75 g/km
Purchase of additional annual leave
 
When does it apply from?
 
The changes apply to all new arrangements entered after 5 April 2017. 
 
Any arrangements already in place at 5 April 2017, will be protected from the new rules until 5 April 2018, unless they involve cars/fuel, living accommodation or school fees which are protected until 5 April 2021.
 
Any variations to existing arrangements after 5 April 2017, will cease to have protection.
 
Action
 
We recommend that all employer’s review their benefit arrangements to assess whether they are caught by the new rules. 
 
Give us a call today on:
 
Darlington - 01325 349700
 
Durham - 0191 3842244
 
York - 01904 784400