Budget 2016: Salary sacrifice car schemes to be reviewed

The Government has committed to review salary sacrifice schemes in view of increased take-up in recent years, and car schemes would not be protected.

Some employers offer salary sacrifice schemes that enable employees to give up salary in return for benefits-in-kind that are often subject to more favourable tax treatment than salary.

For example, if the organisation offers cars on salary sacrifice, staff choosing a very low emission model could end up paying lower tax benefit-in-kind tax on the car than they would pay on the amount of salary as income given up to pay for it.

The Budget statement said: “The Government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes: clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010.

“The Government is therefore considering limiting the range of benefits that attract income tax and NICs (National Insurance contributions) advantages when they are provided as part of salary sacrifice schemes.

“However, the Government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.”