Whilst many are familiar with Andrew Lloyd Webber’s legendary love story, HMRC’s version doesn’t stand to be such a hit.
In April 2017, HMRC announced changes to salary sacrifice (where an employee gives up some of their salary and receives a benefit in exchange) scheme rules which virtually removed the tax and National Insurance (NI) savings these arrangements offered. The changes mainly impact employers who offer benefits in kind and flexible benefit packages to their employees.
The new legislation was introduced due to employers over using and taking advantage of such schemes (in ways they were never intended to be used) which meant HMRC was losing out on tax and NI revenue - a clampdown was inevitable.
Salary sacrifice schemes have been absorbed into a new heading of ‘Optional Remuneration Arrangements (OpRAs)’ and a benefit will be caught under the new legislation where an employee makes a decision to either give up the right to receive an amount of earnings in return for a benefit or agrees to be provided with a benefit rather than an amount of cash (often where they choose something over the cash option).
Under the old rules, salary sacrifice benefits were exempt from Class 1A NIC where there was no income tax charge, whereas the new legislation states that benefits under OpRAs will be treated as earnings and therefore are to be subjected to tax and Class 1A NIC (the tax and NI rules mirror each other).
For the time being at least, some benefits are excluded from being caught under the new rules which include payments by employers to registered pension schemes (now compulsory for employers to make a benefit in the UK), childcare vouchers and cycle to work schemes
As of April 2017, the new rules are triggered when an OpRA starts, is renewed or modified. Otherwise, the trigger date for all existing arrangements is the 6th April 2018. Furthermore, some benefits carry protection from the HMRC Phantom until 6th April 2021 meaning they will follow the old rules until then, however, you must bear in mind that should these benefits be modified or renewed prior to this date, it may impact the tax and NI treatment. The protected benefits are cars with emissions exceeding 75g CO2/km, living accommodation and school fees.
It is important that employers understand these new rules and effectively communicate with employees to ensure remuneration packages on offer remain tax-efficient and there is no nasty surprise for either party.
If you have any questions regarding Optional Remuneration Arrangements (OpRAs) or benefit packages, please contact Charlotte Stewart (email@example.com) or your usual AAB contact.