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Protect Salary Sacrifice by 5 April 2017
22/03/2017, by Lee Sharpe, Tax Articles - PAYE and Payroll Taxes, National Insurance, NICs
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TW Ed points out that the new rules for salary sacrifice may yet offer some useful tax-saving opportunities, thanks to the transitional provisions.


We have previously warned of the impending changes to the salary sacrifice regime that will, broadly, negate any advantage to choosing a benefit over a cash alternative, wherever offered.

These will apply to existing salary sacrifice arrangements, flexible benefit packages, or new arrangements – wherever the employee has the option of cash instead of a benefit in kind.

The legislation can be found at Clause 8 / Schedule 2 to the new Finance Bill 2017

New Mechanism

Under the new rules, Income Tax and Class 1A NICs are applied to the higher of:

  • The cash equivalent of the benefit in kind as currently calculated, or
  • The cash / salary offered in the alternative

Of course the latter cash alternative is likely to be the larger, otherwise there would not normally have been much point in the arrangements beforehand.

Note that the arrangement is still being taxed as a Benefit in Kind – i.e., Income Tax and Class 1A NICs (and no employee NICs)


Government-favoured arrangements, including:

  • Tax-favoured childcare arrangements, (e.g., vouchers, workplace nurseries)
  • Pension savings (and related financial advice)
  • Cycle-to-work schemes
  • Ultra-Low Emissions Vehicles (ULEVs), that have CO2 emissions not exceeding 75g CO2/km

These are all protected from the new regime, so salary sacrifice arrangements will continue to work as before in such cases. Of course, childcare vouchers are set to be phased out as they will soon be closed to new applicants (April 2018); pension arrangements are also subject to a new Annual Allowance “taper” for very high earners.

It is quite ironic that HMRC’s own research found these protected arrangements already to be responsible for the vast majority of tax ‘lost’ by the Exchequer. J

Transitional Protections – Arrangements in Place by 5 April 2017!

The government did listen to concerns that it would be unfair to change the treatment of existing arrangements part-way through an agreement that might be binding on an employee for several years.

Although the new rules apply for any new arrangements from 6 April 2017, arrangements entered into on or before 5 April 2017 will be protected from the new regime until a “trigger point” is reached, which for such ‘old’ contracts will be the earliest of:

  • When the contract renews, auto-renews, starts, ends or is otherwise modified or changed
  • 6 April 2018 where the existing contract is untouched, except it will be
  • 6 April 2021 for:
    • Cars with emissions over 75g CO2/km
    • School fees
    • Living accommodation

It follows that it will be to the distinct advantage of both employee and employer to have arrangements in place by 5 April 2017, so at to benefit from at least some of the transitional protection – up to April 2018 for most arrangements, unless there are variations beforehand, but up to potentially April 2021 for car arrangements, school fees, etc.

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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