Concerned about the growth of salary sacrifice schemes (30% since 2010), the Chancellor has sent warning shots across the bows of salary sacrifice schemes in recent Budgets and Autumn Statements. We all wondered if there would be something bold in this year’s Budget…
The short answer is, there wasn’t! We still do not know exactly which benefits would be subject to a clampdown. However, it appears the government wants to encourage employers to offer certain benefits as the 2016 Budget report did state the review is not intended to affect salary sacrifice on pensions, childcare or cycle to work schemes.
Banning salary sacrifice for some benefits would certainly seem a simple way for the government to increase revenue through National Insurance contributions (NICs) and, in some cases, income tax. As it would impact both businesses and individuals, perhaps they have held off doing anything bold to the system right now – and avoided confirming the timing of any changes - because of the difficult economic conditions.
Benefits in kind, such as private medical insurance or dental cover obtained via salary sacrifice currently only attract NIC advantages (with the employee still subject to income tax on the value of the benefit). Other benefits, such as additional employee life assurance and income protection, better fit the description of attracting income tax and NIC advantages. Any could be a target, but we await further information from the Treasury.
The new lifetime ISA , LISA, throws in a bit of a curve ball as the product does not fit in with salary sacrifice. If LISAs do take off and some of the age and/or contribution restrictions are relaxed over time, standard pension contributions are likely to decline and with it the significance of pension salary sacrifice. I wonder if that is part of the Chancellor’s big plan?
Want to know more about the new lifetime ISA? Read our LISA blog
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