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HMRC has for some time expressed concern about the amount of tax and NIC it is losing out on, because employers are offering cost-effective alternatives to cash salary as part of overall remuneration packages. It warned in the 2015 Autumn Statement that it would be monitoring the perceived increase in the use of salary sacrifice, and has now launched a Consultation Document 

Consultation on Salary Sacrifice for the Provision of Benefits in Kind

HMRC now proposes to apply Income Tax and Class 1A NICs to the higher of:

• The amount of salary sacrificed, and

• The cash equivalent set out in statute (if any)

HMRC uses the provision of a mobile telephone as an example of how much salary sacrifice arrangements can potentially cost the Exchequer. Which is an unusually poor example, since mobile 'phones are one of only a very few items that an employer might provide without the employee incurring a benefit in kind tax charge anyway, such that only modest marginal tax/NIC savings (or costs to the Exchequer) might otherwise accrue. 

It is reassuring that HMRC is at pains to point out that salary sacrifices arrangements in respect of government-approved benefits will not be affected, such as:

• employer pension contributions;
• employer-provided pension advice based on the recommendations of the Financial Advice Market Review (FAMR);
• employer-supported childcare and provision of workplace nurseries; and
• cycles and cyclist’s safety equipment which meet the statutory conditions.

but let's not forget that:

• Employer pension contributions have already been significantly curtailed thanks to continuing reductions in the Annual Allowance and the restrictions for high earners announced in the 2015 Summer Budget
• Employer Supported Childcare in the form of Childcare Vouchers is being phased out anyway

What is most surprising is that despite HMRC's investigations uncovering that the vast majority of benefits supplied through salary sacrifice are the very same goverment-approved benefits it promises to protect, (see "Results of Evidence-Gathering" in Section 2 of the report), it feels a need to address the relatively small remainder. 

Also, HMRC has said in its consutlation that its proposals will only be effective where there is a salary as an alternative. Which may have the obvious consequence of many employees' future career progression being measured in terms of mobile 'phone contracts, Childcare Vouchers or chocolate buttons (assuming HMRC doesn't contend that school playgrounds constitute a "ready market")

It is also worth pointing out that HMRC's concerns about the "growing risk to the Exchequer" do not sit at all well with the facts published by National Statistics, which show that PAYE Income Tax and NICs receipts were at an all-time (or 10-year, at least) high in 2015/16, with PAYE receipts £7Bn higher than in 2014/15 and NICs receipts £3Bn higher than in 2014/15 - i.e., an overall annual increase of more than £10Bn. Which leads to the questions: how much of a risk are these salary sacrifice arrangements, really, and at what point will HMRC be satisfied that it has collected "enough" tax?