Buying Annual Leave -tax implications

Midgetgem8200

For the last few years I have bought extra days annual leave through my employers salary sacrifice scheme and always saved tax and National insurance by doing this. For the upcoming 23/24 tax year the information given out says that we will no longer save tax as the benefit will now be reported on our p11d and we will therefore pay tax on the amount. 
Is this correct and if not, can anyone point me in the direction of something official from gov.uk or similar where it says you don't pay tax on it. I think they have made a mistake and want to prove it to them

Jeremy535897

I wonder if they are muddling this with arrangements for employees to sacrifice salary in return for an employer buying a holiday for them? I cannot see where a benefit comes in if you reduce your salary because you work fewer hours.

[Deleted User]

Jeremy535897 said:

I wonder if they are muddling this with arrangements for employees to sacrifice salary in return for an employer buying a holiday for them? I cannot see where a benefit comes in if you reduce your salary because you work fewer hours.

Indeed.

https://www.gov.uk/expenses-and-benefits-holidays/what-to-report-and-pay

Midgetgem8200

Yes I'd found this too, just can't find anywhere where it says you don't pay tax of you are buying annual leave

[Deleted User]

This may help:

https://www.widerplan.com/news/time-for-change-holidayflex

Grumpy_chap

Midgetgem8200 said:

Yes I'd found this too, just can't find anywhere where it says you don't pay tax of you are buying annual leave

There is no list of all the thing you don't pay tax on.

It sounds like whoever first said you would not avoid tax gave a comment in relation to the general SS rather than specific for buying extra annual leave.  Perhaps, if all the various options are processed via the same benefits management system, whoever said about the tax simply did not know.

Say you work 5 days per week, that is 260 days full time. 
You get paid £100 per day, so that is £26k per year.
In that there are paid Bank Holidays (usually 8 days per year) plus, say, 5 weeks' paid annual leave.  
Working days 227 out of 260.
Say you take 7 days unpaid leave (which is what the extra holiday is, whether they call it SS or anything else). 
You work 220 days instead of 227 days.
You get paid 7 days (£700) less so your annual pay reduces to £25,300 and that is then what you are taxed on.

All made up figures abut rates of pay, just for example purposes. 
Different methods of calculating the value of the day off also exist.

MattMattMattUK

Jeremy535897 said:

I wonder if they are muddling this with arrangements for employees to sacrifice salary in return for an employer buying a holiday for them? I cannot see where a benefit comes in if you reduce your salary because you work fewer hours.

The cost of a days holiday is not usually the same as one days pro-rata earnings so I wonder how that complicates matters?

Jeremy535897

There are two different scenarios using the word "holiday". The first is where the employer buys a holiday package for an employee, which of course is taxable. The second is where the employer agrees a reduction in salary for working fewer hours or days. That is a reduction in taxable pay, just like someone who used to work full time choosing to work part time.

[Deleted User]

Jeremy535897 said:

There are two different scenarios using the word "holiday". The first is where the employer buys a holiday package for an employee, which of course is taxable. The second is where the employer agrees a reduction in salary for working fewer hours or days. That is a reduction in taxable pay, just like someone who used to work full time choosing to work part time.

Conversely where one agrees to give up holiday entitlement in return for an additional payment, that payment is simply treated as additional salary. 

It is difficult to see how the reverse would not apply. 

A long time ago, when I left my job, I owed 0.5 holiday days. Being such a generous employer (big four) my final gross pay was reduced by the equivalent amount. Surely this is exactly the same thing?

Grumpy_chap

[Deleted User] said:

I owed 0.5 holiday days. Being such a generous employer (big four) my final gross pay was reduced by the equivalent amount. Surely this is exactly the same thing?

It would seem to be.

I imagine the employer has all the various "flexible benefits" administered by an outsourcing arrangement which keeps track of everything and then just reports it all back to the employer HR / pay-roll dept.  The result is the people the OP spoke to at HR / pay-roll / line manager become uninformed on the details of the way the different parts are treated for tax and such like.  The "flexible benefits" company probably take care of all sorts of things, such as:

• childcare vouchers
• buying / selling holiday
• more / less pension contributions
• car schemes
• healthcare benefits
• gym membership
• discounts scheme (Reward Gateway / Edenred)

Midgetgem8200

Yes, there is a flexible benefits company who administer it (MY CHOICE). I submitted my question to them and they referred me to our hr department who said that yes it had changed this year. I'm not happy with that response though as I'm sure it's wrong! Just not sure how to prove it to them! There is a document which says which elements are taxed and this is one that now is. It wouldn't be the first time they've made errors though