Salary sacrifice scheme - is it a taxable benefit?

SM1234_2

So this is the situation that I would like advice on...

I’ve received a statement from HMRC stating that I owe them an amount of tax that they are going to start taking back by adjusting my tax code from April 2019. When I looked at the statement it seems my employer has advised HMRC that I have had benefits in kind worth X amount. It then occurred to me that this was the amount of an order for electronic items I placed when a salary sacrifice scheme was made available to employees around Christmas 2017. So I rang the payroll department and advised them that I think they have made an error as the goods were part of a salary-sacrifice scheme and they’ve been declared as benefits in kind. Payroll’s response was that a salary sacrifice scheme is a benefit in kind.
Does this sound correct? Surely if the salary sacrifice scheme purchases were taxable at a later date once the P11D has been submitted to HMRC, there is no point in having a salary sacrifice scheme at all - as the saving in PAYE is the attraction of scheme. I had a cycle to work scheme with the same employer which was salary sacrifice and I’ve never been asked to repay the PAYE on this.
NB I have checked back on the paperwork for the purchases and it clearly states Salary Sacrifice

Many thanks in advance

System

You're right, salary sacrifice is not a BIK. You usually don't get any benefit from purchasing through salary sacrifice, just that payments are docked at source and spread throughout the year. In affect, you are paid in money and goods to the value of your salary.



Watch out though...salary sacrifice can have an affect on tax and pensions I assume as by getting paid in goods and money, does have an effect on the amount of tax and NI you pay AND pension....one of the reasons I would never do it on a large item

JCS1

Cycle to Work Scheme and Payroll Giving are approved by HMRC, maybe the electronics one isn't and that is why it is classed as a Benefit in Kind?

SM1234_2

Thanks Andy,

I thought it didn’t make sense. But as payroll are meant to be the experts in these things it did make me question myself.
I agree re the pension situation. It was just shy of £600. We can lease vehicles through a salary-sacrifice scheme and being such a large amount I would be concerned about the impact it would have on my pension.

JCS1

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

BoGoF

Tax legislation has recently changed due to the abuse of salary sacrifice. Only the 'approved' schemes have escaped. Lease cars via salary sacrifice is now also a taxable benefit.

SM1234_2

Thank you. I wasn’t aware of this. I’ll have a word with the union as they tend to get a comprehensive response rather than a one line remark and see if this is why I’ve been asked to pay the PAYE.

SM1234_2

The one thing that isn’t clear from the gov.uk article is what happens with schemes that are already in situ when the rules came into force from April 2018. It states that the schemes will no longer be exempt from being classed as a BIK. However, it doesn’t state if the PAYE would be due from the start of the scheme or from April. By April I was already a quarter of the way through the agreement, but I am being asked to pay PAYE on the full amount.

MichelleUK

SM1234 wrote: »

Does this sound correct? Surely if the salary sacrifice scheme purchases were taxable at a later date once the P11D has been submitted to HMRC, there is no point in having a salary sacrifice scheme at all - as the saving in PAYE is the attraction of scheme. I had a cycle to work scheme with the same employer which was salary sacrifice and I’ve never been asked to repay the PAYE on this.
NB I have checked back on the paperwork for the purchases and it clearly states Salary Sacrifice

Many thanks in advance

The cycle to work scheme is very different as the government want to encourage cycling, hence the tax benefits.

Your company is correct. The benefit that you get buying goods through salary sacrifice is that you 'potentially' pay a lower price (as the company will have negotiated a discount) plus you save by avoiding paying national insurance (either at 12%, 2% or a combination of the two). It is correct that you must pay the tax, hence the P11d.

Think about it further. Say you were on £20,000 and then you said to your employer, pay me £15,000 instead and £5,000 worth of white goods for my new kitchen. HMRC will still expect you to pay tax on the white goods...otherwise everyone would be paid in goods, rather than cash, to avoid tax!

MichelleUK

BoGoF wrote: »

Tax legislation has recently changed due to the abuse of salary sacrifice. Only the 'approved' schemes have escaped. Lease cars via salary sacrifice is now also a taxable benefit.

Lease cars through salary sacrifice have always been a taxable benefit, it is just that they are changing the way that they calculate the value of the benefit....more often than not, by increasing it!