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Limiting salary sacrifice arrangements

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HMRC is consulting until 19 October 2016 on limiting the range of benefits that attract income tax and NICs advantages when provided as part of salary sacrifice arrangements.

The government proposes 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 NICs, even if it is normally exempt from tax and Class 1A NICs, at the greater of:

·         the amount of salary sacrificed; and

·         the cash equivalent set out in statute (if any).

This would mean that where the normal taxable value of the benefits-in-kind is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way.

The following will not be included in the changes and will continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements:

·         employer pension contributions;

·         employer-provided pension advice based on the recommendations of the Financial Advice Market Review (FAMR);

·         employer-supported childcare and provision of workplace nurseries; and

·         cycles and cyclist’s safety equipment which meet the statutory conditions.


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