Tax expert Craig Hughes explores employers’ options following April’s changes
Significant changes to salary sacrifice schemes announced in the 2016 Autumn Statement will require companies of all sizes to give careful consideration to the way workplace benefits schemes are delivered. Thenews that tax perks are to be axed on a range of benefits is certain to prove unpopular with employees, who have come to view these schemes as part of their remuneration package. With increased costs making it impossible for benefit schemes to continue in their current form, organisations that adopt an innovative and proactive approach to implementing new frameworks will be best able to mitigate any employee tensions arising from these changes.
With most employers unable to consider absorbing the increase in costs attached to existing salary sacrifice schemes, one option is to simply remove workplace benefits altogether and reintroduce those eligible for tax relief. However, not only is there still demand for benefits such as company cars and mobile phones, individual contractual obligations may also make adopting such a strategy unfeasible.
Allowing employees to continue making use of benefits that are ‘free’ to use, while also dealing practically with those that incur a tax liability, two-tier salary sacrifice schemes offer businesses a logical solution. However, as well as carefully weighing up the costs involved in implementing this new structure, employers will need to manage the transition with care to ensure their workforce does not feel short-changed or let down.
From individual operators through to large global organisations, all businesses are bound to feel the impact of the changes to workplace benefit schemes, which came into force last month. However, the financial flexibility enjoyed by many larger firms means they effectively have broader shoulders to deal with these matters. As well as the additional employer’s national insurance to be payable on benefits that no longer qualify, the expertise necessary to put in place a two-tier benefits scheme will inevitably incur extra costs.
While larger organisations may already have such advice on hand in the form of in-house finance and HR teams, SMEs will potentially need to seek this guidance from a third party. The increased administrative burden involved in reassessing staff benefits on an employee-by-employee basis also means companies with larger teams and specialist software in place will be in a better position to navigate the transition.
Previously, benefit schemes have provided SMEs with an important means of competing within the UK jobs market. Without the brand and reputation of large organisations, smaller businesses have often used a benefit package to help attract and retain quality job candidates. In light of the changes, smaller companies should consider new ways of winning applications from talented individuals. Where topping up employee salaries is not an option, non-financial benefits such as flexi-hours, additional holidays and the option to work from home can help to add value to a firm’s employment package.
Effective communication is essential in mitigating any tensions relating to the changes. As well as emphasising that the revisions are government-set rather than company-led, employers should give their workforce sufficient information to appreciate their individual financial position and make well-considered decisions accordingly.
While the removal of tax perks on certain employee benefits has so far proved controversial, the changes do bring salary sacrifice schemes back into line with their original intention. Arguably, the decision to keep benefits such as childcare vouchers, cycle-to-work schemes, ultra-low emission car schemes and pension contributions tax-free is a logical one that aims to encourage positive behaviour such as adopting a green approach and saving for the future.
By clearly distinguishing between what does and does not qualify for salary sacrifice purposes, a two-tier structure provides companies with a practical way of continuing to offer benefits packages to employees.
Craig Hughes is a private client tax director at Menzies
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