HM Revenue & Customs (HMRC) recently launched a consultation on reforming the salary sacrifice schemes that companies across the UK utilise to reduce their employees’ tax bills.
Salary sacrifice schemes
Salary sacrifice schemes allow millions of workers to exchange portions of their wages for taxable or non-taxable perks. With these programmes, firms use their bulk buying power to purchase goods and services such as laptops, phones and cars, for their staff to buy at discounted prices. Because these purchases are made before tax, these schemes allow people to lower their tax bills.
So as an example, let’s say that an employee from your company purchases a £700 mobile phone contract via a salary sacrifice scheme. If the worker in question is a high tax rate payer, they would save £294 by pursuing this option, while as their employer, you would also save £97. In contrast, this purchase would cost the government a total of £391.
Reforming salary sacrifice
The Telegraph writes that in the 2015 Summer Budget, Whitehall expressed concerns about the increasing cost of salary sacrifice schemes to British tax payers. In the recently-published consultation paper, the government said that it is now considering whether to exclude some items from salary sacrifice schemes altogether. Whitehall admitted in the paper that it still holds concerns over the increase of salary sacrifice arrangements, along with their fairness on the UK’s tax system.
Explaining further, the report noted: “The way in which benefits are provided has also evolved, with a growing market for flexible benefit packages, often combined with salary sacrifice arrangements. This growth represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that do not.”
Elaborating, Whitehall wrote that “We want employers to continue to offer benefits to their employees, but need to balance this with the interests of all taxpayers.” In line with this aim, some things will remain unaffected by this measure. This includes employer pension contributions and pension advice, as well employed-supported childcare and workplace nurseries. The provision of cycles and cycling safety equipment via the ‘cycle to work scheme’ will also be unaffected.
Handling tax obligations
One your key duties as a limited company director, is to ensure that you fulfil your firm’s tax obligations. We would advise you to ensure that whatever comes of HMRC’s consultation into salary sacrifice schemes, your firm has the infrastructure and support needed in place to handle its tax affairs effectively. Turner Little can supply you with the UK banking advice and corporate administrative services your business requires to ensure it submits the correct tax to HMRC, every year.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider. You can receive our monthly newsletter by signing up using the form below.
