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Govt closes in on salary sacrifice cap

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The Government is considering capping the savings employees and employers make through salary sacrifice schemes as part of a crackdown on arrangements that limit tax.

The Budget documents reveal the Government will consult on limiting “the range of benefits that attract income tax and National Insurance Contributions advantage when they are provided as part of salary sacrifice”.

However, the Government will not impose an outright ban on such arrangements, which include pensions, childcare and health-related benefits.

It says: “The Government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice.”

It adds requests to HMRC to set up salary sacrifice schemes have increased by over 30 per cent since 2010.

In addition, the Government is tightening the rules around other payments that are exempt from National Insurance.

From April 2018 payments of over £30,000 that are subject to income tax will lose their exemption, including redundancy payments.

Retirement Advantage pensions technical director Andrew Tully says: “The use of salary sacrifice arrangements is universal among the UK’s largest employers, as well as public sector organisations like the NHS, and the Government is taking steps to limit its use.

“For now the most common-place uses to reduce pension and childcare costs are unaffected, but it does show this issue is firmly on the Government’s radar.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. It’s a bit of a minefield this given that the entire tax and NI rules surrounding employer pension contributions are essentially as a result of the same tax breaks which result in SalSac.

    Therefore whilst SalSac effectively unravels existing remuneration and moves some across to the employer (resulting in tax breaks all round), employers who offer employer pension contributions to their staff (which of course will soon be everyone!) as well as the staff themselves benefit from these same breaks (i.e. tax relief at course, no NI on either party, no P11d etc etc).

    Hmmm.

  2. Just tell me how anyone will know about a private arrangement between employer and employee?

    ‘ You are due a raise of £5k – how would you like it?’
    ‘Oh I’ll take £2k in salary to keep my tax down and £3k + your saving in NI as an additional pension contribution – thanks’

  3. Clarity please from Government. With many smaller firms likely to AE over the next year, one suitable strategy would normally be salary sacrifice. Also is there an issue where we may have to unravel existing arrangements?

  4. Making redundancy payments subject to NI is very low, especially if it’s as a result of the Governments ineptitude causing 1000’s of people to be made redundant!!!

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