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  • A mixed prognosis for salary sacrifice Posted on 26 November 2015

    Hidden away in the small print of the Autumn Statement was this comment from the Government on salary sacrifice schemes:

    The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach.

    It's a slightly stronger statement than the one in the Summer Budget:

    Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and National Insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising. The government will actively monitor the growth of these schemes and their effect on tax receipts.

    What may have changed since the summer is that the scheme operators have shown that at least some salary sacrifice is good for the economy. It's difficult to see the Government removing salary sacrifice benefits for additional pension contributions or childcare vouchers, for example. It's not so difficult to see an end to salary sacrifice scheme members having the right to (in effect) pay less tax on the purchase of expensive electrical items using discounted pre-paid shopping vouchers.

    Salary sacrifice cars is a trickier area, as there's a big difference in political terms between (for example) a nurse getting a modest tax break on a small car for driving to work, and a high-earning salesperson using salary sacrifice to splash out on a second expensive car.

    Nothing will happen quickly, but it doesn't seem likely that the Government will eventually decide not to act at all. Pre-paid shopping vouchers seem likely to disappear. Will salary sacrifice cars go the same way? That might depend on whether a way of limiting schemes can be found that works for the nurse but not for the salesperson.

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