From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.
In his first Autumn Statement, chancellor Philip Hammond targeted salary sacrifice schemes where 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.
Mr Hammond confirmed this will affect types of salary sacrifice schemes differently.
Pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt from the changes to the taxation of salary sacrifice schemes.
All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.
Former pensions minister Ros Altmann said abolishing salary sacrifice can save significant amounts of money for HM Treasury.
She said the change to salary sacrifice means fairness between employees but extra costs to firms.
Trevor Clark, operations director of financial planners Rutherford Wilkinson, says: “Whilst the chancellor has announced restrictions to the usage of salary sacrifice, the core schemes of pension contributions, child care and cycle to work have survived which is positive, not negative, news.
“These are key benefits that can truly make a difference to someone’s life, and at the same time save on both the employees’ and employer’s National Insurance bill.
“Surely it was never the intention of any government to allow tax relief on excessive benefits in kind provided by employers and this just mops that up without withdrawing its use for the more important schemes which was threatened at one stage.”
emma.hughes@ft.com
