Workers will pay hundreds of pounds more a year for perks such as mobile phones, health screening and gym membership under changes to salary sacrifice arrangements. The move is likely to hit those “just about managing” the most, according to experts.
Philip Hammond also removed the tax advantages associated with employee share status in a move that appears to run counter to the government’s intention to improve employee representation and engagement.
Salary sacrifice schemes — which enable perks to be paid from employees’ salaries before tax — benefit from reduced tax and national insurance. From April some of these schemes will benefit only from a saving on employee national insurance, with the tax and employer national insurance benefits taken away.
Perks including pensions, childcare, the Cycle to Work scheme and ultra-low emission cars will be exempt from the reforms. Arrangements set up before April next year can remain until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.
PwC, the accountancy firm, has calculated that for a health screening scheme costing £400 a year under salary sacrifice a basic rate taxpayer will pay £80 a year more and that a higher rate taxpayer will pay an extra £160. Membership of a gym at work worth £30 a month will cost between £72 and £144 more. A mobile phone contract costing £25 a month will cost an extra £60 to £120. Those who take advantage of car parking schemes costing £5 a day will be heavily penalised, paying between £261 and £522 a year more.
Debi O’Donovan, director of the Reward & Employee Benefits Association, said: “Removing income tax breaks on so many employee benefits offered via salary sacrifice schemes will mean that many low and middle earners will lose access to these perks. It will be the ‘just about managing’ employees who will be most affected by no longer having access to so many health and wellbeing benefits and mobile phones.
“The salary sacrifice arrangements have made many employee benefits affordable for lower-paid employees. This change will have little impact on the higher paid, who will probably continue to select the benefits they want or receive them as an employer-paid benefit.”
Chris Sanger, head of tax policy at EY, the professional services firm, said: “Salary sacrifice has been a great enabler, allowing lower-paid employees to choose the benefits they want, something previously only possible for those nearer the boardroom. Denying relief when benefits are chosen in this way will also penalise those longer-term employees, compared to new joiners who agree their benefits before they start work.”
Sixty per cent of companies are thought to offer such schemes. The Treasury estimates that the reforms will save the chancellor £235 million a year, rising to £260 million once cars are included.
Carolyn Fairbairn, director-general of the CBI, said that companies would be discouraged from offering perks. “While exempting important areas like pensions and childcare, this measure sends the wrong signal to companies wanting to invest more in employee health and wellbeing,” she said.
Employers will have to pay more national insurance for salary sacrifice schemes: for instance to offer a £25-a-month mobile phone under salary sacrifice the employer will have to pay £41.40 a year extra in national insurance.