Posts Tagged ‘Salary sacrifice’

Changes to tax-free childcare

Monday, July 30th, 2018

There are changes to tax-free childcare later this year which will affect millions of working parents. Time is running out for parents wanting to join Childcare Voucher schemes (CV) as after 4.10.18, such schemes will be closed to new parents.

The government has been phasing in the new tax-free childcare scheme as a replacement for vouchers. However, parents can only receive tax advantages from one scheme or the other, i.e. not from both at the same time.

Can I register for the current CV scheme?

Ask your employer if they run a CV scheme. If so, you have until 4.10.18 to register for an eligible scheme in order to qualify for the associated tax advantages.

You can continue to receive the vouchers after October 2018

  • If you’re successfully enrolled on a CV scheme before that date
  • If you stay with the same employer and
  • Providing you don’t have an unpaid career break longer than a year

 

Tax benefits to the:

  • Employer – yearly National insurance savings of up to £402 for every parent remaining in the scheme
  • Employee – can take up to £55 per week/£243 per month of their salary in childcare vouchers on which there is no tax or NI, although this depends on earnings and when the employee joined the scheme.

A key difference with the new tax-free childcare scheme is that it’s operated outside payroll, so is available to the self-employed. Other differences are that the new scheme is only available for children up to 12 years old (15 if disabled) and both parents (or single parent) must be working. Eligible parent/s can claim up to £2,000 pa per child.

We can advise you on your options to ensure you’re optimising your tax position and being as tax efficient as possible. There are other arrangements still possible under UK tax regulations which employers can offer, resulting in a tax reduction for the both the employer and employee. Such schemes include the ‘cycle to work’ scheme and certain pension arrangements.

To find out how we can help you and your business save tax, please email [email protected] or call 01527 558539. She can discuss how these changes to tax-free childcare affect you.

Or, visit our website where you can find out about our full range of services to both individuals and businesses.

tax-free childcare

 

Optional Remuneration – major changes for employers ahead

Tuesday, February 21st, 2017

From April 2017, where optional remuneration benefits are provided to an employee, many employers (and employees) are likely to find their tax & NIC bills increase due to new rules. These changes were only recently published in the draft Finance Bill 2017 and are not well known to most employers.

The changes relate to two specific areas, namely salary sacrifice arrangements and cash alternative arrangements, with tax applied on the higher valued option under either of these areas.

For example, in a salary sacrifice arrangement, under the new rules, tax could be applied to the greater of the salary exchanged or the value of the benefit.

Of course, the new rules apply to Optional Remuneration, i.e. where the employer has a choice. If no choice is given, the employee will be taxed on what he/she receives without any adjustment for the equivalent.

The new rules are designed to remove the inequality between employees and employers who benefit from the tax & NIC advantages and those who don’t.

Exemptions

Optional Remuneration arrangements in place before 6 April 2017 are protected under grandfathering provisions until 5 April 2018 and arrangements involving cars/vans, living accommodations and school fees are protected until April 2021.

Completely exempt from the new rules include employer-provided pensions, childcare and ultra-low emissions vehicles.

More details are expected to follow soon and we are able to offer bespoke advice to employers on this matter.

To find out how the changes are likely to affect you and what action you should be taking, please contact [email protected] or call 01527 558539.

Optional Remuneration

Autumn Statement 2015 – future measures

Wednesday, November 25th, 2015

Future Measures……

Moving forward to the Budget 2016 and the various consultations in place here are some of the items we expect to see:

  • Salary Sacrifice – Further consultation is being sought to assess what action can be taken to combat the rise in use of these arrangements.
  • Pension Tax Relief – We expect to see further restrictions on pension tax relief currently £40,000 limit for higher rate relief to be announced.
  • ISA Tax Relief in Probate – Expecting to see legislation to allow the ISA tax relief to apply during the estate administration period.
  • Loan Relationships – Following new accounting standards being introduced further rules on corporate debt relief are expected.
  • Tax Avoidance – Various new measures are expected to penalise those who undertake these schemes.

.

Salary sacrifice – are you missing out on tax breaks?

Monday, September 16th, 2013

Recent findings suggest that millions of taxpayers are missing out on tax savings as they’re unaware of their entitlement to ‘salary sacrifice schemes’.

What is it?

Salary sacrifice happens when an employee gives up the right to part of their salary or bonus due under their employment contract. A non-cash equivalent is taken instead and the act of doing so means that the employee’s contractual terms are changed.

Such schemes have been in place for a number of years, with take up higher in some sectors of the economy than others.

For a salary sacrifice scheme to be effective in HMRC’s eyes, the employer must be able to demonstrate that new contractual arrangements have been made, ultimately satisfying HMRC that:

  • The employee’s entitlement to cash has been reduced,
  • That a non-cash benefit has been provided by the employer and
  • That the employer is not simply meeting the employee’s own financial commitments

The reason for the popularity of salary sacrifice schemes is that the employee can opt to receive benefits which are tax and/or NIC exempt and there are associated savings too for the employer.

What can I receive under salary sacrifice?

One of the most popular salary sacrifice items has been childcare vouchers, where the employee elects to receive tax-free vouchers to go towards paying for qualifying childcare places. Tax savings can be around £900 per year as the vouchers are not subject to tax or NIC.  The employee’s gross salary is reduced by the vouchers received, leaving less salary subject to tax and NI.

However, the way taxpayers receive tax-free childcare is changing with a new system being brought in from 2015, providing up to £1,200 of childcare support per child.

Another popular salary sacrifice item is pensions, with taxpayers electing to receive less salary in exchange for tax-free deductions to a registered pension scheme. There is also the added bonus that generally the employer will make contributions to the pension, often matching the employee’s contribution.

Salary sacrifice is especially popular with taxpayers earning just above the £100,000 income threshold. Since April, individuals have had their personal allowance reduced by £1 for every £2 of income above £100,000. Many taxpayers have agreed to salary sacrifice schemes in which they pay enough into their pensions to get them below the £100,000 mark. This means not only are their pensions boosted, but that they continue to receive personal allowance in full.

Another group of taxpayers are those whose income sits above £50,000. Individuals with income in excess of this amount have had their Child Benefit cut since earlier this year. For those earning above £60,000, the Benefit is lost altogether. Using a salary sacrifice scheme could reduce relevant earnings to a level at which Child Benefit is preserved.

Many other items can be received as part of salary sacrifice schemes, for example:

  • Interest free loans to buy season tickets on trains
  • bikes under the ‘Cycle to Work’ scheme

What are the downsides to salary sacrifice?

Employees who enter into salary sacrifice schemes should be aware that this act will change their contractual terms of employment. It also means that their notional salary is reduced which will have consequences for salary-based bonuses and other benefits.

Those receiving maternity, paternity and sick pay may find that their payments are reduced or stopped if their earnings fall below the Lower Earnings Limit (LEL) of £102 per week. Salary sacrifice in these circumstances may carry the same advantages. Salary sacrifice cannot bring salaries below the minimum wage limit.

Our tax specialist in this area is Helen Sewell who can assist you with your queries. Call Helen on 01527 558539 or email Helen on [email protected]..

Cycle to work scheme – could it work for your business?

Tuesday, May 28th, 2013

The cycle to work scheme was introduced over 10 years ago, allowing employees to purchase cycles and cycling equipment as a tax-free benefit. The scheme is open to all employers who must make the scheme available to all employees generally, with no groups excluded, in order to qualify for the tax exemptions.

There are different rules for the self employed.

There is no limit on the total value of equipment loaned under the scheme which includes cycle helmets, pumps & repair kits, reflective clothing and mirrors. In order to qualify for the tax exemption, there are a number of conditions whch should be satisfied including using the cycle mainly for work use.

Strictly, ‘mainly’ is taken to mean more than 50% of the use of the bike relates to a qualifying journey and failure to stick to this rule could result in the loss of the associated tax benefits. Should the rules not be observed, the employer could have to report the benefit on form P11D and account for Class 1A NICs in the normal way. Also, the employee would become liable for the tax due on the benefit in kind.

Practicalities

To help employees tax advantage of this scheme, either the employer buys the cycling equipment and loans it to the employee, or the employer recovers the cost of the equipment via a salary sacrifice arrangement.

In a salary sacrifice arrangement, the employee can receive the benefit in kind tax free instead of salary (on which tax and class 1 NICs would have been payable). Similarly, as the benefit is covered by a tax exemption, the employer will not have to account for Class 1A NICs.

Another tax issue to consider is the ability of the employer to claim capital allowances on the cost of expenditure. Currently most employers could claim 100% of the cost of any expenditure under the Annual Investment Allowance which stands at £250,000 until 1 January 2015.

There are other issues to consider in relation to salary sacrifice arrangements, such as the National Minimum Wage, entitlement to benefits, insurance and VAT.

The Department for Transport has further guidance.

Curo

May 2013.

 

 .