Salary sacrifice benefits and the National Minimum wage – another nail in the coffin? | Release Date Oct, 10 2009 |
Recently, we understand HMRC has taken legal advice relating to salary sacrifice schemes where some employees are excluded on the grounds of breaching certain legal requirements, like falling below the National Minimum wage and being under 18 (for Consumer Credit Act purposes for bikes to work). In order to be tax exempt, some benefits need to be offered to all employees and these salary sacrifice exemptions breach this. | |
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Recently,
we understand HMRC has taken legal advice relating to salary sacrifice schemes
where some employees are excluded on the grounds of breaching certain legal
requirements, like falling below the National Minimum wage and being under 18
(for Consumer Credit Act purposes for bikes to work). In
order to be tax exempt, some benefits need to be offered to all employees and
these salary sacrifice exemptions breach this. By clarifying this, HMRC is setting out their position and
presenting a challenge to employers offering these types of schemes. Whilst we have yet to hear how they
will apply this in practical terms, employers should review their own
arrangements and identify areas of risk. There
is news of some discussions taking place about changes to the rules associated with
childcare vouchers to deal with this potential conflict but the recent
announcement at the Labour conference that tax relief will be removed from this
benefit from 2011 seems to imply that there is not a commitment to finding a
long term solution. We hope this
changes as parents and employers are currently confused about what to do going
forward. Other
benefits that might be caught by the NMW exclusion issue include bikes to work
and bus tickets. Some that can be
offered to restricted groups of employees and do not need to meet the “available
to all test” include parking at work, health screening and work related
training. This
issue highlights the fact that benefit taxation and salary sacrifice were never
designed to work in harmony and conflicts have been created with other
legislation designed to protect employees. It also reveals the lack of joined up thinking offered by
various legal and taxation initiatives and one has to have some sympathy for
HMRC trying to make sense of it all – OK, possibly not but certainly employers
are having a tough time under the weight of complexity. Whilst
we need to hear more from HMRC and the Government about the way forward, we
urge employers to review their arrangements and plan for the changes to be
made. Redbourne can help now by
reviewing your current exposure and looking at your benefit plan designs to analyse
the combination of salaries and benefit funding levels to see if there is an
issue or not. Solutions will need
to cover enhanced benefit design and changes to your rules and we are confident
there are ways forward which will help improve the overall plan rather than
comprise it. For
more information please contact: Richard
Stewart Gillian
Haworth | |