Payroll and Benefits in Kind and Salary Sacrifice

One thing that’s certain when it comes to payroll is that HMRC are always introducing new legislation and guidelines. As an outsourced payroll services provider, it is our job to keep up to speed with all these changes so that our clients don’t have to.

Sometimes HMRC starts the process of new legislation by opening a consultation with relevant bodies first, as it has done recently with Benefits in Kind and Salary Sacrifice. This article looks at the proposed changes and considers the implications for payrolls.

What is Salary Sacrifice?

Salary Sacrifice has become increasingly popular in recent years. Salary sacrifice arrangements are when an employee agrees to give up some of their normal cash wages in return for some form of non-cash Benefit in Kind. The attraction of salary sacrifice is that once the element of salary is given up – or sacrificed – it is not chargeable to income tax nor is it liable for employee or employer national insurance contributions.

What is HMRC trying to achieve?

If the proposed changes go through, then where a benefit in kind is provided through salary sacrifice, it will be subject to Income Tax and NI in the normal way. There are many Benefits in Kind that are given as salary sacrifice, and HMRC has made clear that some will be unaffected by the proposed new legislation. These include: employer pension contributions, employer-provided pension advice, employer-supported childcare and provision of workplace nurseries, and cycles and cyclists’ safety equipment provided under the cycle to work scheme.

The consultation also states that the aim is not to stop employers providing benefits in kind through salary sacrifice. What HMRC wants to do is remove the tax and National Insurance advantages currently enjoyed by some salary sacrifice benefits in kind.

Those involved in the consultation include: employers who operate salary sacrifice and flexible benefit arrangements, their representatives, trade organisations and any other interested parties.

The government will publish details of the consultation responses and expects to make an announcement in the Autumn Statement 2016 on decisions made in light of those responses. Any policy changes are expected to feature in the 2017 Budget.

What Could This Mean to Payroll?

As an outsourced payroll service provider it is out job to ensure that any new payroll legislation is implemented into our systems as soon as it becomes law. In this case, if changes are introduced then the necessary code changes for our software will be made automatically so that you don’t have to worry about it.

If you run a small business and struggle to keep up with HMRC’s payroll changes, it might be worth  thinking about outsourcing your payroll. Contact us or call us on 0121 422 0550 for an initial chat. We would be delighted to hear from you.

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