Changes to taxation of Flexible Benefits following the Spring 2017 Budget
Written by: Victoria Foxwell
The spring 2017 Budget saw the Government introduce changes to the tax and National Insurance (NIC) treatment of voluntary benefits. Although they are perhaps not as substantial as most were anticipating, there are still some significant changes that are likely to affect most employers.
Salary sacrifice has been replaced with Optional Remuneration Arrangements (OPRA) which introduces two types of benefit arrangements to identify the tax and NIC treatment applicable to each benefit.
Type A is what we all understand as a salary sacrifice benefit where the employee chooses to give up part of their salary in exchange for a benefit.
Type B is where a company paid benefit is offered to the employee who can choose the benefit or a cash alternative. Both types are subject to tax, but still save NIC which is how most of the benefits that fall under this category were already treated e.g. voluntary dental insurance. However, some other benefits that were exempt from tax before are now affected. Examples of benefits that have lost their tax savings due to these new rules are additional/voluntary life assurance and income protection, i.e. any ‘flexible’ element (whether that means employee paid or if it is optional/ exchangeable for a cash alternative), health assessments and cancer screening.
In light of OPRA and the likelihood that further changes will be made in the near future, a lot of employers are changing from salary sacrifice to payrolling so that employees pay the tax liability on these benefits at source and not at a later date via a tax code adjustment following the submission of a P11D form.
There are now only a handful of benefits that are “safe” and will continue to provide tax and NIC savings. These include pension (including advice and bonus waiver), childcare vouchers, cycle to work, buy/sell holidays and give as you earn. As these benefits are among the most popular employee benefits offered they will continue to offer great savings to employees and employers.
It is important to note that benefits selected prior to 6th April 2017 will be protected until either the next renewal date or until 6th April 2018, unless a change is made by the employee. This means that the tax and NIC treatment does not change until any of these three events have occurred.
Although flexible and voluntary employee benefits may not be quite as attractive as they once were, there is still a compelling case to offer a wide selection of benefits to employees that can benefit from NIC savings and group discount rates.
In addition, by coordinating the benefit offering via a platform, employers are still able to centralise the communication and administration of benefits which will both reinvigorate the look and feel of the offering and also potentially save a great deal of HR administration time. Helm Godfrey is able to assist in sourcing benefits and also providing the technology solution to modernise your Employee Benefit Programme.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Occupational pension schemes are regulated by The Pensions Regulator.