Salary sacrifice schemes hit in Hammond's first Autumn Statement

Caitlin Morrison
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Employee benefits such as gym memberships will no longer be available tax-free (Source: Getty)

Employee salary sacrifice schemes such as gym memberships will no longer be tax-free, the chancellor said today.

Philip Hammond said in his Autumn Statement that certain benefits employees enjoy tax-free at the moment will no longer be exempt.

The Treasury said that the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, but pensions, child care, ultra-low emission cars and cycle to work will remain tax-free.

This means employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income.

Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

The government said it was phasing out the tax advantages of salary sacrifice arrangements to "promote fairness and broaden the tax base".

In George Osborne's last Budget, the former chancellor said the government was looking at ways to cut salary sacrifice schemes.

Short-sighted policy

“Philip Hammond’s announcement to tighten salary sacrifice schemes is a short-sighted policy to recoup tax receipts that wholly under-estimates the longer-term impact on the health and wellbeing of the nation," said Luke Prankard at Thomsons Online Benefits.

"Employers who have focused on preventative healthcare are already seeing healthier and happier workers. By abolishing tax incentives on health screenings and gym memberships, the government is making it prohibitively expensive for employers to encourage their employees to have healthy behaviours. This will have a huge impact further down the line - increasing the burden on the NHS and public finances.

"The government might be making small savings through tax receipts now, but it will cost them significantly more in healthcare interventions in future. It is imperative the government keeps its intention to maintain salary sacrifice on pensions, cycle to work schemes and childcare vouchers as these are key benefits."

He added: “Tightening the rules around salary sacrifice will unfairly affect ‘the sandwich generation’ – those working people who are already caring for their children and elderly parents in an under-provisioned social care system. Benefits offered through salary sacrifice were helping these people to look after themselves after dealing with these other family pressures. Now the government will be tightening the belts of the squeezed middle again.”

KPMG tax partner Colin Ben-Nathan said: “The government has decided to press ahead with the removal of tax advantages for salary sacrifice, aside from pensions, childcare, Cycle-To-Work and following representations from KPMG, amongst others, ultra-low emission vehicles from April 2017.

“This will affect a large number of employers and employees, who will see a rise in their tax bills, albeit there will be transitional arrangements for existing schemes. That said, deciding what is salary sacrifice and what is a renegotiation of a package may be subject to some argument.”

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