A Salary sacrifice arrangement is, in effect, an agreement between the employee and employer where the employee reduces their “cash pay” in exchange for a non-cash benefit. This can be financially beneficial as the non-cash benefits are partially or wholly exempt from National Insurance contributions (NICs).
Some companies have traditionally offered a salary sacrifice scheme on cars (amongst other perks); the chance to contract hire a brand-new car with the option of a funder-maintenance package (servicing, tyres and MOT), means that employees can benefit from both a nicer vehicle and tax savings. For an employer this reflects an enhanced rewards package (for employee retention), there are financial savings on NICs and this can sometimes offer more equality compared to a traditional company car scheme.
From 6 April 2017 new rules governing salary sacrifice schemes will come into effect, as was announced in the 2016 Autumn statement. However, there have been subsequent meetings with tax experts and industry bodies, which are still ongoing, so not all of the specifics have been clarified. However, the Government are going to be cracking down on salary sacrifice type arrangements, so that the NIC savings for employer and employee will be removed.
As a result of the above, we think that there will be a decline in the attractiveness of salary sacrifice schemes for both parties. Already we have seen company car schemes in decline, as employers wish to utilise company car allowances (cash for cars), in order to reduce the risks associated with the managing of a fleet. Added to that is the increase in company car tax (recent announcements have confirmed this will continue to increase), which means that business drivers are looking for more tax efficient options. In the salary sacrifice domain, many of the drivers are unlikely to be using the vehicle in conjunction with the business, so moving that employee over to a personal contract hire arrangement should not be too difficult – perhaps companies will look at small car allowance schemes to replace the salary sacrifice schemes to enable employees to benefit in the same way?
Further Information on the Scheme....
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