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Changes to salary sacrifice schemes
One of the big changes to come out of the recent Autumn Statement was the announcement that there will be a clamp down to the tax benefits of certain salary sacrifice schemes from April 2017. This change is likely to affect millions of employees who have sacrificed part of their salary and are currently paying less tax as a result.
A consultation that looked at restricting the Income Tax and National Insurance Contributions advantages for benefits in kind provided as part of salary sacrifice arrangements was launched in August and closed on 19 October. The consultation stated that employer pension contributions, employer-provided pension advice, employer-supported childcare and provision of workplace nurseries and cycles and cyclist’s safety equipment provided under the cycle to work scheme would remain unaffected by this measure. It appears that the government has kept the exemptions from the scheme as set-out above and has also added ultra-low emission cars to the list.
It has also been confirmed that 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 4 years. This gives employees a small window of opportunity to start or extend their salary sacrifice arrangements to take advantage of the 1-year and 4-year protections from the new rules.
Employers and employees may also start to show a greater interest in driving ultra-low emission cars given the environmental and tax benefits. The exact details of the proposed changes to the salary sacrifice schemes are still to be published. We will add further comment on the changes when more facts have been released.
Budget date changes
The Chancellor used his first Autumn Statement speech to announce that it would also be his last. Despite this comment being greeted with delight from the other side of the House all was not as it seemed. The Chancellor was actually referring to the government’s decision to switch to an Autumn Budget and a Spring Statement.
This change had been called for by many businesses as well as economics and tax experts. These included the International Monetary Fund, Institute for Government, the CBI, and the Chartered Institute of Taxation. The UK is currently the only major advanced economy to make significant budgetary changes twice a year.
This means that the March 2017 Budget will be the last to be held during springtime with a second Budget taking place next year in Autumn 2017. From 2018, there will be a Spring Statement which is expected to be sharply reduced in scope and to move away from being a mini-Budget. However, the government will retain the option to make changes to fiscal policy at the Spring Statement if the economic circumstances require it. The Budget cycle will continue from Autumn 2018 and beyond.
This change will also mean that the Finance Bill will be introduced following the Budget with Royal Assent expected before the start of the following tax year. This will mean that the majority of tax changes should be announced well in advance of the start of the tax year.
Following a consultation that took place over the summer, the government confirmed that the £30,000 tax free exemption on termination payments would be retained. However, from April 2018 certain payments will no longer fall within the allowance.
It has been confirmed as part of the recent Autumn Statement that from April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer NICs. Non-contractual termination payments of up to £30,000 will continue to remain exempt from Income Tax and employer NICs. The government will monitor this change and address any further manipulation of those making termination payments.
In addition, from April 2018, it will become irrelevant whether a payment made in lieu of notice is contractual or discretionary. These payments will be subject to deductions for tax and NICs as earnings. In addition, all other post-employment payments which would have been treated as general earnings if the employee had worked their notice period will be subject to tax and Class 1 NICs. These changes will have a direct cost for employers offering significant termination packages.