A new HMRC survey suggests valuable employment perks could be under threat, with millions who use salary sacrifice pension schemes warned.
A HMRC warning has been issued for millions of UK households who get employee perks. A new HMRC survey suggests valuable employment perks could be under threat, with millions who use salary sacrifice pension schemes warned.
As well as salary sacrifice, workers who benefit from Benefit in Kind arrangements could be in the Labour Party’s sights ahead of the Autumn Budget. The Chancellor, Rachel Reeves, could clamp down on the perks, it is thought.
HMRC has ran a survey, titled: “Understanding the attitudes and behaviours of employers towards salary sacrifice for pensions.” It puts forward hypothetical scenarios over possible changes to salary sacrifice schemes for pensions.
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One scenario removed the NIC exemption for employers and employees, resulting in employer and employee NIC charges on the salary that the employee sacrificed.
Another removed both the NIC exemption for employers and employees and the income tax exemption for employees, on the salary sacrificed.
And a third removed the NIC exemption but only on salary sacrificed above a £2,000 per year threshold. HMRC later launched a second consultation, titled: “Research with employers on Benefits in Kind and expenses”.
Caroline Harwood, head of employment tax at accountancy and business advisory firm BDO said: “You can understand why the chancellor might be interested in reviewing the tax reliefs for pensions salary sacrifice schemes. The most recent figures show that the cost of NIC tax reliefs from contributions to, and benefits from, registered pension schemes reached £23.5bn in 2023/24. Meanwhile the cost of Income Tax relief for registered pension schemes reached £28.5bn in the same period.
“Previous chancellors have shied away from taking this ‘low hanging fruit’ because of the furore that changes to pensions tax causes – and because saving for retirement has generally been seen as something to encourage.
“One subtle way the chancellor could feasibly seek to cut some of this cost would be by limiting the NIC exemption to say £2,000 to £5,000 of total salary sacrificed for all benefit types – after all the self-employed cannot benefit from this perk. However, such a change would still be unpopular and reduce incentives for employers to offer salary sacrifice schemes and for employees to make suitable provision for their retirement. It would also add new burdens on employers who would have to calculate the excess if people went over the threshold.
“Employees currently using Benefit in Kind incentives through salary sacrifice schemes could also lose out if the current incentives were reduced. This could have a particularly big impact on those taking advantage of such schemes to lease Electric Vehicles – another arrangement previously encouraged in the context of the path to Net Zero.”
