Many employers allow employees to pick and choose from a range of benefits such as extra holiday, company car or health insurance. Each employee may be able to sacrifice a part of their salary to receive the benefit, which often results in NIC savings for both parties and a tax reduction for the employee.
From 6 April 2017, most benefits provided by way of salary sacrifice will be taxable on the greater of:
The amount of salary sacrificed
The value of the benefit for tax purposes
The employee will face an increased tax charge on the grossed-up value of the benefit, ie the gross salary needed to buy the benefit after tax deductions.
There will be transitional arrangements for cars, school fees and living accommodation, which can stay in place until April 2021 without additional tax charges.
Also, the tax treatment of these four benefits won't be affected:
Pension contributions and associated advice,
Cycling to work scheme
Ultra-low emissions cars
In all other cases, the salary sacrifice arrangements should be reviewed without delay.