HMRC has published two new surveys which leading advisory firm BDO are concerned could result in the removal of valuable employment perks, such as salary sacrifice pension schemes and Benefit in Kind arrangements, during the Chancellor’s Autumn Statement.
One survey, called Understanding the attitudes and behaviours of employers towards salary sacrifice for pensions, appears to test how employers would react to the possible removal of the salary sacrifice scheme for pensions by using a number of hypothetical scenarios. Salary sacrifice is where an employee foregoes some of their income so the employer pays it into their pension for them instead as an enhanced contribution. This saves National Insurance Contributions (NICs) for both the employee and employer because the pension contribution isn’t subject to either income tax or NICs.
The three scenarios in the survey gave examples where the NICs exemption was removed, the NICs and income tax exemption on salary sacrifice were removed, and where the NICs exemption was only removed above an annual allowance of £2,000.
Why would the Government want to do this?
The appeal of reforming these benefits is largely due to the cost associated with the NICs tax reliefs from salary sacrifice schemes. NICs tax reliefs on pension contributions and the benefits from them amounted to £23.5 billion in 2023/24 for registered pension schemes.
Income tax relief in the same period reached £28.5 billion, giving a combined total of £52 billion that could be added to the Treasury coffers if these benefits were removed altogether. So, reform of these benefits could prove lucrative for the Treasury.
However, doing this would be a major change from previous chancellors, as any changes to the tax regime of pensions could be seen to discourage people saving for their retirement. It would probably also be unpopular with employers, who would need to calculate how much people may have gone over any threshold imposed.
What about Benefits in Kind, are they likely to change?
The Benefits in Kind regime is also potentially under the microscope, with a different survey called Research with employers on Benefits in Kind and expenses, which looks at how many employers offer such benefits to employees. They are relatively common for many medium or large employers.
Workplace parking (39%), company cars (29%), and cycle to work schemes (23%) are the most common types of Benefit in Kind perks. Around a quarter of medium and large employers offer these Benefits in Kind through salary sacrifice, potentially creating a double whammy for the Government when it comes to NICs and income tax relief payments.
However, if the Benefit in Kind incentives through salary sacrifice were reduced, employees could lose out. It would have an especially big impact on those taking advantage of such schemes to lease Electric Vehicles – another arrangement previously encouraged in the context of the path to Net Zero.”
Whether these schemes will be hit in the Autumn Statement remains to be seen, but if they do and you are either an employer or employee using these, then you should take advice on how you can soften the blow while making sure you are still fully compliant with any tax rule changes.
