The consultation is under way – but what will the outcome – and impact – be?

increasing cost

How long has salary sacrifice been under scrutiny? Since the 2015 Spring Budget there have been mutterings about the pros and cons of salary sacrifice schemes – and the likelihood that the government will scrap them.

In this year’s Budget, the Chancellor safeguarded pensions, childcare and ‘health-related’ salary sacrifice (including, for example, cycle to work schemes), while announcing an ongoing consultation on other benefits in kind and salary sacrificeable benefits.

As such benefits have an NI and tax impact on the Treasury, there has been widespread concern about the bearing a consultation may have on many flexible benefits.

One of the biggest losses could prove to be car salary sacrifice, although providers are fighting hard to save the ever-popular – and growing – benefit. Analysis from provider Tusker, for example, goes into detail about where car salary sacrifice is providing positive contribution to the Exchequer.

PES, provider of HR and benefits support, commented in a recent paper on the consultation: “Understandably, opposition is rife [to scrapping car salary sacrifice] and if many voices unite, the government may be forced to take heed. Green motoring is being actively encouraged, so hitting car schemes that promote this might prove to be a bit of an own goal! If there are changes, we’d hope they wouldn’t affect those who have already taken the benefit.”

The consultation sets out that the growth of flexible benefit schemes and salary sacrificeable benefits “represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that don’t.”

It’s the first part of that sentence that has a real relevance to the consultation – the expense to the government.

Surely the ‘uneven playing field’ could be argued about any benefits provision? If the uneven field between employers using a salary sacrifice arrangement and those who aren’t is a real issue, then why did auto-enrolment not set a standard employer contribution structure for all? Will the next crackdown be on health insurance, because some employers offer it and some don’t?

If it’s all about the even playing field, then employers of the future will find it very hard to distinguish themselves as great places to work, killing healthy competition in the war for talent.

PES’ paper remains positive, saying that the benefits that “really count for employees…will remain the attractive, tax-efficient options they’ve always been”, and pointing out that the proposals “have no impact on payroll giving, flexible working or holiday trading”.

And of course, there remain many benefits in the flex package and beyond that employers can offer to help their staff make their money go further, and attract and retain talent.

“We believe that anyone implementing flexible benefit schemes purely to save on tax and NI may be missing the point”, says PES – and rightly so. Benefit spend should be about so much more than where the employer can grasp a saving.

But in the overall picture, I don’t believe that there is a real concern, as the government consultation puts it, “about the growth of salary sacrifice arrangements and their fairness on the tax system” – rather a simple tightening of the Treasury purse strings.