Last year HM Revenue & Customs revealed how it will limit any tax and national insurance contributions savings from salary sacrifice schemes.
The taxman stated the government did not believe benefits-in-kind - effectively paid for by employees themselves through reductions in gross salary - should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.
HMRC unveiled plans to change tax legislation so that where a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions.
Last week HM Revenue & Customs finally issued the final legislation in relation to the changes for salary sacrifice – which come into effect in less than a week giving advisers with corporate clients no time to get their heads around the finer details.
However Graham Farquhar, employer solutions partner at RSM, said while it was bad enough that these are some of the biggest and most fundamental changes to the taxation of benefits in kind in recent times and employers were given just over two weeks to prepare, he has now uncovered anomalies in the final rules and guidance that were published.
We hope that HMRC will bear this in mind in the future when a compliance review highlights aspects of non-compliance in this area.Graham FarquharMr Farquhar emphasised that while the guidance was in draft form and by implication couldn’t be relied upon, this was troubling on so many levels.
Mr Farquhar said the legislation as drafted results in some anomalies.
For example, he said where an employer provides a white goods scheme which results in the employee having a transfer of asset it is possible that the employee may be taxed on 140 per cent or 160 per cent of the original value of the asset.
HMRC has said in consultations that this wasn’t intended but Mr Farquhar said the necessary changes have not been applied to the final legislation.
Plus Mr Farquhar said the guidance provided by HMRC is not only in draft form but it doesn’t address many of the areas where we really thought further clarity was required.
For example, he said he had hoped that there would be clarity around the circumstances when prospective employees join an organisation and what constitutes a cash alternative.
Mr Farquhar said: “It appears that despite representations from a number of bodies that these changes needed more time - not only for in-depth consultation but also to allow employers to make the necessary changes to their internal processes prior to being introduced - HMRC and HM Treasury have decided to plough on with the implementation on 6 April.
“The original guidance was promised in January but HMRC has said that due to staff constraints the publication had to be delayed, yet employers are expected to be able to comply with the new legislation with not only 16 days’ notice but also with guidance that is insufficient.
“We hope that HMRC will bear this in mind in the future when a compliance review highlights aspects of non-compliance in this area.”
When asked to comment on why employers were given the rules so close to 6 April and about the anomalies, an HMRC spokesperson said: “HMRC have been clear for some time that changes to the tax and national insurance treatment of benefits in kind were coming.
“We published draft legislation in December 2016 and consulted widely on the wording.
“The legislation put forward in Finance Bill 2017 reflects a number of changes made in response to comments from stakeholders.
“Following standard government practice we published draft guidance alongside the proposed legislation earlier this month. When the Finance Bill becomes law this will become formal guidance.”
Chris Daems, director of Cervelo Financial Planning, said the time provided to employers to prepare for the changes to salary sacrifice taxation is painfully short.
He said: “While for pensions and childcare you can still benefit from salary sacrifice arrangements it us a shame for both employers and employees that they've decided to take this action.
“Whilst I recognise it is a potential revenue raising move for the government it potentially provides a disincentive to employers who a looking to put tax efficient benefits in place for employers where these benefits will not now benefit from salary sacrifice.
“I'm just not convinced the benefits outweigh the disadvantages in this particular instance."
emma.hughes@ft.com
