With big changes happening in 2017 and beyond, is it still the best bet?
Changes to the way salary sacrifice works will come into effect on Thursday 6th April. With this deadline date fast approaching, what does it mean for employers and employees?
Quite simply, from this date onwards a number of salary sacrifice schemes will no longer be eligible for reduced tax and NI payments, with the sacrificed portion of an employee’s salary coming out of their wage slip after tax, rather than before. This will also mean that employers will no longer benefit from reduced NI bills.
What’s changing in April?
Come 6th April, a large number of salary sacrifice schemes will no longer provide tax savings to employees. While employers can still offer salary sacrifices to their employees once the changes come into effect, the new rules mean that most salary sacrifice schemes will be subject to the same tax as cash income.
The schemes that will be affected and no longer provide these savings include:
- Car parking
- Health screening
- Non-ultra-low emission cars
- Phones and computers
- School fees
The following four schemes are exempt from April 2017’s changes:
- Childcare vouchers
- Cycle-to-work schemes
- Ultra-low emission cars that emit less than 75g of C02 per kilometre driven, and are capable of 10 miles or more of zero-emission driving
What’s changing next?
What’s important to remember is that these rules will only be applicable to new programs launched from 6 April 2017. Salary sacrifice schemes which are already up and running will not be affected by the new changes until April 2018 – or if your scheme renews before April 2018. The four exemptions discussed above will also remain exempt after April 2018.
So if you’re currently offering a salary sacrifice scheme that will not be renewed before April 2018, you and your employees will continue to enjoy tax and national insurance savings for a while yet.
What’s changing in the future?
With salary sacrifice schemes changing from April and other schemes to be affected over the next four years, there is always room for the opportunity to improve or introduce similar schemes.
It’s also worth noting that a number of key benefits such as non-ULE cars, accommodation and school fees will also be exempt until April 2021 – so there’s an extra four years of savings. This means employers and employees alike are still in line to make savings over the next few years, despite the new rules.
What does this mean for employers?
If you’re an employer that provides salary sacrifice benefits, we strongly recommend you contact your provider so they can advise you on what to do in response to the rule changes if you haven’t already.
Employers can still offer great benefits, allowing employees to spread the cost of more expensive services – such as travel, tech or healthcare – over a year.
As mentioned, Cycle-to-Work schemes will be exempt from the upcoming changes in April, and have been shown to have positive health effects, with 89% of Cycle-to-Work participants saying cycling helped them get fitter.
The financial implications stretch further for employers, with Cycling UK reporting that Cycle to Work schemes generate at least £72 million in economic benefits for the UK economy in terms of health every year. The same report also found that, on average, regular cycle commuters take less time off sick from work than colleagues who do not cycle to work.
While other benefits will cease to offer tax and NI savings in the same way, it should be clear how providing health and wellbeing support for employees pays dividends far beyond immediate financial savings. Benefits such as mental health support or health screenings shouldn’t be lost just because they no longer help reduce the tax bill – a happy workforce is more engaged.
For example, with stress accounting for 37% of all work-related ill health cases and 45% of all working days lost due to ill health, improving employee wellbeing and offering items such as lifestyle support can have a massive impact.
So, is there still a point to salary sacrifice?
Short answer – yes! And we’re not just saying that – there is a very good case for continuing with salary sacrifice even after the rules change.
Not all tax and NI savings are going away
Salary sacrifice as we know it is not going away completely. For some of the most commonly used arrangements – pensions, childcare vouchers and cycle-to-work, as well as the environmentally minded ULE cars, it’s all business as usual for the foreseeable future, with no plans to change.
Changes don’t begin until April 2017 – and that’s just for new programs. Existing schemes will be affected in April 2018 – so it will be possible to run a 12-month program with full tax and NI benefit, provided it is launched before the end of March 2017.
A number of essentials, including non-ULE cars, accommodations and school fees will also be exempt until April 2021 – so in this case, it’s an extra four years of savings.
Ask yourself – would you, and your employees, rather save for one to four more years before having to stop, or make no savings at all? We’re fairly confident most would pick the former over the latter.
Salary sacrifice benefits should be about more than money
The tax and NI savings for many programs may eventually be disappearing, but organisations are by no means banned from offering them to employees – the sacrificed amount will simply be taken out after tax.
This will continue to help many families to manage their budget a bit more easily, with one less direct debit or bill to take care of (and no chance of running out of funds before these essentials are covered).
Think, also, about spreading monthly costs – many employees struggle with big annual lump sums for season tickets, instead paying smaller amounts each month that add up to more overall. Salary sacrifice can still help by purchasing the annual ticket upfront and passing on smaller monthly repayments.
But employee benefits shouldn’t be viewed solely as a way to save money – they are investments in the health, wellbeing, loyalty, happiness and motivation of your staff.
Particularly in times of financial hardship, health and lifestyle benefits can help your employees access services they may otherwise be unaware of, or unable to afford, thanks to corporate deals that organisations will most likely still be able to access.
Offering lifestyle benefits without tax and NI savings will incur costs, but can also offer savings for employees and provide support with a net value far in excess of those costs. Providing these benefits show that you care about your employees’ wellbeing – that you are actively thinking about ways in which you can support them.
We’re here to help
As a provider, our focus is now on three things:
- Helping you to make the most of the existing rules before they change.
- Easing any administrative burdens that will come with these changes.
- Developing innovative ways for our clients to deliver attractive and exciting benefits to their workforces through an alternative mechanism.
We look forward to working with businesses to establish a sustainable method of funding these important schemes, which can continue to improve the day-to-day lives of employees. We’re focused on developing a number of innovative and exciting salary deduction programmes in the future, to continue supporting the UK’s employers – and their staff.