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Diana Bruce

the Chartered Institute of Payroll Professionals

Senior Policy Liaison Officer

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Flexible benefits revealed: CIPP report

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More than seven out of ten employees are offered salary sacrifice schemes by their employers, with the most popular options being either pension contributions or childcare vouchers.

These are the key findings of a Chartered Institute of Payroll Professionals survey conducted among 213 people during December and early January to establish what type of flexible benefits employers are providing.
 
The study also showed that a third of respondents believed that the provision of flexible benefits by employers was on the up. But such a scenario comes as no surprise.
 
With the economy struggling, many employers are not in a position to give pay rises and bonuses and so it is more important than ever that they provide some form of workplace benefits package in order to ensure that employees feel valued.
 
Of those benefits, the most popular appeared to be pension contributions (77%). While they will have to be extended to all staff this October when automatic enrolment is introduced, whether salary sacrifice continues to be an option here will, of course, be up to individual employers.
 

Next on the list, however, was childcare vouchers, which were offered by 73% of employers as an incentive for working parents to save on childcare expenditure. But it was likewise encouraging to see that, even in these stringent times, some 49% of employers gave to charity via the payroll.

Other common benefits were cycle-to-work schemes, healthcare, membership fees, holiday purchasing, qualification fees, training and life insurance. 

But more than a fifth of employers chose not to offer any flexible benefits on top of basic salaries at all. This is despite the fact that it is not necessary to spend a lot of money on implementing such packages as the savings that it is possible to make on employer National Insurance Contributions, for example, can be used to cover the  the additional cost of administration. 

It is also despite the fact that a huge 85% of workers rated flexible benefits as being either ‘very important’ or ‘important’ to them.
 
Changing dynamics
 
One of the questions that our policy & research team is often asked, however, is whether HMRC will remove salary sacrifice schemes altogether because they seem to be making them more and more difficult to administer.
 
A key example of this was the change brought in last April to Employer Supported Childcare, in which legislation now restricts the level of income tax relief available to higher rate and additional rate taxpayers so that it matches that available to basic rate taxpayers.
 
The move wasn’t actually intended to make the scheme less accessible but rather to make it fairer for everyone in relation to tax and NICs relief – and indeed, the changes only apply to new employees who joined a scheme after 6 April 2011.
 
This means that those who are already in a scheme are unaffected by the changes and can continue to receive tax and NICs relief at their marginal rate.
 
But the introduction of a required ‘Basic Earnings Assessment’ was not good news for people administering ESC schemes as the assessment has to be carried out both as soon as an employee joins a scheme as well as annually at the start of every subsequent tax year in order to work out how much tax relief they are entitled to.
 
Fortunately, an assessment remains valid for the whole year and is not affected by any increases or decreases in pay or by any changes to the value of any taxable benefits. These changes are instead reflected in the Basic Earnings Assessment carried out the following year.
 
But there was also a recent tribunal ruling, which gave those employers entering into salary sacrifice schemes a big wake-up call to ensure that they always make the appropriate contractual changes. In the case of Reed Recruitment Agency v HMRC, the scheme was ruled invalid and the agency could now be liable for a tax bill of more than £150 million.
 
As of September, however, there could be a substanital rise in interest in salary sacrifice schemes as employees seek ways to get around the increasing tuition fees involved in sending their children to English universities. Apart from assistance with student loans, salary sacrifice schemes could also prove popular with professionals looking to develop their own expertise.
 
Elaine Gibson, the CIPP’s associate director of payroll qualifications, said: “Salary sacrifice is a contractual arrangement, whereby employees can sacrifice a portion of salary in place of certain benefits, one of those benefits being workplace training and education. Such a scheme enables both the employee and the employer to take advantage of tax breaks."
 
For example, employers would not have to pay National Insurance on the value of the education or course and the employee would not have tax and National Insurance deducted. "This is a win-win contractual arrangement for both the employer and the employee,” Gibson concluded.
 
 
Diana Bruce is a senior policy liaison officer for the Chartered Institute of Payroll Professionals. This article was first carried by our sister website, www.www.accountingweb.co.uk.
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Diana Bruce

Senior Policy Liaison Officer

Read more from Diana Bruce
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