Some employers offer their employees a choice about elements of their remuneration package, such as taking a company car or a car allowance. When cash earnings are swapped for a benefit in kind, both the employer and the employee may be better off, if the benefit attracts lower National Insurance Contributions (NIC) than a cash payment.
The Government believes it is missing out with these salary sacrifice arrangements, so the law is to be changed such that NIC will be charged at the higher of the value of the cash foregone and the value of the benefit received. Where the employee is not given a choice of salary or a benefit, they won’t be affected.
The new rules will have to be applied to salary sacrifice arrangements which are renewed or modified after 5 April 2017. Where the benefit received is a car, school fees or accommodation, the new NIC rules must take effect from 6 April 2021, but for other benefits the new NIC rules must apply no later than 6 April 2018.
The following benefits are excluded from these new NIC rules; pension contributions, pensions advice, childcare, cycle-to-work schemes and ultra-low emissions cars.
If your employees enjoy a choice of salary or benefits, we should talk about how this change in the law can be implemented by your business.