The Chancellor announced at Autumn Statement that new rules are coming in on 6 April 2017 for Benefits in Kind (BiKs) where they are provided by salary sacrifice. Further details of the changes were announced yesterday (5 December)
The Customer and Stakeholder Engagement Team have issued the following advice:
Salary Sacrifice is changing from April 2017
What does this mean for me?
New rules are coming in on 6 April 2017 for Benefits in Kind (BiKs) where they are provided by salary sacrifice. If you provide benefits to your employees in exchange for salary sacrifice / salary exchange or have a flexible benefits package where your employee can choose a benefit or cash, or where you provide benefits but offer your employee a cash alternative then you will be affected / need to know about these changes.
Benefits impacted are those which are currently taxable, like cars and white goods, and those currently tax exempt, like mobile phones and workplace parking.
The taxable value of the benefit will be the higher of the current value or the cash forgone. This will be the value you use for calculating Income Tax and Class 1A National Insurance Contributions (NICs).
What do I need to do?
If you are using salary sacrifice with your employees you need to familiarise yourself with the new rules.
You don’t need to do anything if your employees are sacrificing salary only for pensions, pensions advice, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to work or cars with emissions of or under 75 g CO2 / km.
If your employees are sacrificing salary for anything else then you need to use the new rules. You will report different taxable values in many cases, on the new P11D (see ‘What changes will I need to make in my payroll / HR software’).
When do I have to do this?
The new rules do not start until 6 April 2017. Salary sacrifice contracts entered into on or before 5 April 2017 will be protected up until the contract hits a trigger point.
What is a trigger point?
From 6 April 2017, the normal trigger point is when the salary sacrifice contract renews, autorenews, starts, ends or is modified or changed. At this point you must use the new rules. This should align with your normal business as usual contractual arrangements.
However, if the existing contract is still in place on 6 April 2018, then there will automatically be a trigger point on 6 April 2018 (this will be 6 April 2021 for cars with emissions over 75g CO2/km, accommodation benefit and school fees).
If an employee starts a contract on or after 6 April 2017, then you will need to immediately use the new rules for that employee. This will apply to new recruits
What changes will I need to make in my payroll / HR software?
We will be updating specifications and test services for the 2017-18 P11D and P46 (Car) reporting from April 2018, which will be provided as part of our usual year-on-year changes.
To make the first year easier, we will not be updating the P46 Car for in year reporting and you should continue to use the existing form. Employees who will need to pay more tax can either call HMRC, or wait and the normal P11D process will pick up any corrections after the end of the year.
In April 2018 HMRC will introduce a new version of the P46 (Car) along with a new P11D which will ask for details of any salary sacrificed to allow reporting of the extra information.
I am voluntarily payrolling, what do I need to do?
For the majority of benefits, most employers will be able to change one taxable value for another. We recognise that for cars this may be more difficult due to software constraints. We will release further technical guidance in late January for payrolling, including what to do if you cannot update your systems in time.
You need to make sure the right figure is being payrolled after a trigger point is hit, this is especially important for cars. For 2017-18 HMRC is updating the software requirements for car data for those voluntarilypayrolling benefits. These new requirements collect information about the car’s details, such as CO2 emissions and the list price.
I am using an intermediary / payroll bureau / agent to do my payroll, what do I
need to do?
You need to make sure that they are aware that your employees are using salary sacrifice and that they use the correct taxable values as described above.