Government considers employee benefits tax changes

HM TREASURY is consulting on how businesses pay their staff to understand whether companies artificially use benefits in kind to avoid tax.

Flexible remuneration packages have rapidly evolved in recent years and can now often include a mix of cash and benefits in kind (BiK), such as pension contributions or company cars. Most employees are paid a salary in cash but the provision of benefits has long been a tool which companies use to attract employees.

The government is testing the waters with this consultation should it decide to change the way the benefits code applies when a BiK is provided in conjunction with a salary sacrifice or flexible benefit scheme.

The effect of reducing an employee’s pay often reduces the amount of income tax, employee and employer NICs due to the Exchequer, the government says it has found.

It now proposes to change tax legislation so that where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs, even if it is normally exempt from tax.

Since the 2008 financial crash successive governments have changed tax laws to close loopholes businesses have found to reduce tax. This would appear to be another attempt to close a loophole some companies may be using to cut their tax liability.

Benefits such as employer pension contributions, employer-provided pension advice, employer-supported childcare and provision of workplace nurseries and cycles and cyclist’s safety equipment as part of the cycle to work scheme will not be affected by the proposed measure.

The consultation will run until 19 October 2016