Salary sacrifice

Employees and employers have been able to gain
a tax advantage from the different tax treatments of cash salary and bene ts in kind. A ‘salary sacri ce’ scheme involves replacing cash salary with a bene t that is more advantageously taxed, resulting in a saving where such a bene t would otherwise have been purchased from after-tax cash pay. These tax and NIC advantages are to be withdrawn from 6 April 2017. Arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars will be excluded; existing arrangements will be protected
for a transitional period until April 2018, and existing arrangements for cars, accommodation and school fees will be protected until April 2021.

The Chancellor has announced a wider review of the taxation of bene ts, with the intention of making this area ‘fairer and more coherent’. This appears likely to have a signi cant effect on any employee who is in receipt of bene ts from their employer.

Making good

An employee who repays to their employer, or ‘makes good’, the cost of a bene t, avoids a tax charge. As previously announced, from April 2017 such making good will have to take place by 6 July in the following tax year if it is to be effective.

Disguised remuneration

HMRC has been concerned about individuals working through personal service companies and similar arrangements for two decades: they regard this as a way of avoiding PAYE and Class 1 NIC where ‘in reality’ (in HMRC’s view) the individual is acting as an employee. Several different attempts have been made over the years to counter this, generally imposing a liability on the personal service company to account for tax on its income as if it

was received by an employee (with a 5% deduction to allow for expenses). From 6 April 2017, the responsibility for paying this tax will be transferred to the employer where the person works in the public sector. The 5% deduction will not apply in these circumstances.

The Chancellor also announced that further measures will be introduced to counter disguised remuneration schemes used by self-employed people, and employers will be discouraged from contributing

to such schemes by being denied a deduction for the expense unless tax and NIC are paid within a speci ed period.

Employee shareholders

Employee shareholder status was introduced in 2013: employees could enjoy certain tax exemptions on shares awarded by their employers in return

for forgoing some of their employment rights. The Chancellor said that this appears to have been exploited by high earners, rather than giving bene ts to those it was aimed at. From 1 December 2016, new shares issued under this scheme will not have Income Tax or CGT advantages (shares already held are not affected).

Termination payments

As announced in March, from April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer’s NIC. Tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. The rst £30,000 of a genuine termination payment will remain exempt from tax and NIC.