In salary sacrifice schemes, employees exchange some of their salary for a non-cash benefit in kind (such as a mobile phone). Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all.
From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. Employers and employees are still able to use salary sacrifice, but with the tax and Class 1A NICs advantages removed.
This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
It is important to note that schemes currently in place for pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt from the changes.
On the 6th of April 2017 the new rules will come into effect, however the arrangements between an employee and employer, which are binding on both parties and entered into on or before 5 April 2017, are protected until the earlier of:
- a variation in the terms of the BiK, or renewal of the contract, or
- the employee changes employer, or
- 6 April 2018, or
- 6 April 2021 for cars (with emissions of more than 75g CO2/km) and accommodation.