No cause for panic - salary sacrifice provider rebukes claims the summer budget could target it

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It’s exactly one month to go before the first ‘summer budget’, but according to yesterday’s Sunday Times, salary sacrifice – the recent star in employee benefits – could be put under the microscope.

The report quotes experts who say “the government may have these generous schemes in its sights,” and that the scheme is “under threat”.

Speculation a review of salary sacrifice could be imminent has been around since the end of last year, when the Office of Budget Responsibility revealed it expected the Treasury to lose around £120million in the next five years due to retirees using it to avoid tax in their pensions.

In 2013, The Office of Tax Simplification (OTS) also urged government to clarify its approach to salary sacrifice. Its ‘Review of employee benefits and expenses’ report, it said employers were struggling with the myriad of salary sacrifice arrangements.

It reported: They [government] seemed to endorse salary sacrifice in some areas - pension contributions and cycle schemes - but not in others. Salary sacrifice schemes are often difficult to explain to employees because of P11D reporting. There are implications for Universal Credit and student loan repayments.” It added 'Overall, we think there is in many ways a need for clear policy statements on this whole area.'

FundWeb (the website of Fund Strategy magazine) and Hargreaves Landsdown both report this week that salary sacrifice could be reviewed.

If salary sacrifice were abolished, it would have a major impact on one of the biggest growth areas – fleet. So popular has salary sacrifice been for fleet in recent years that in 2013, 150,000 new cars were sold through it (11.5% of all company cars that year). Moreover, global strategy consultant, OC&C, predicts salary sacrifice could account for up to 10% of all new car sales in the UK by 2025.  

But Andrew Leech, MD, Fleet Evolution, says he believes The Times article should not be a cause for panic. He said: “There’s been talk about changing rules around business expenses, but that’s only because it’s dissimilar from car salary sacrifice – in that here government loses out in Benefits In Kind taxation.”

He adds: “Salary sacrifice is not really a government policy issue; it’s a change of someone’s terms and conditions. In our view car salary sacrifice has a net impact on the economy. It puts new cars on the road (four out of five buyers take brand new cars), which puts VAT into the economy.' He added: 'It also keeps the car industry going and helps contribute to European emissions targets.”