11th November 2016
Many employers now offer their staff great methods of saving, with valuable tax breaks and discounts, such as Company pensions, Save As You Earn schemes, Share Incentive Plans, Workplace ISAs, Child Care and Salary Sacrifice schemes. However, a number of key changes are due to come in that individuals should be aware of.
The Government have announced that it is considering limiting the range of benefits which can be bought using Salary Sacrifice. This arrangement is where an employee gives up part of their salary in return for non-cash workplace benefits, such as Childcare Vouchers, or increased pension contributions. Lower cash pay means they pay less tax and National Insurance (NI), and employers’ NI contributions are also less. Some employers pass on part or all of these savings to their employees.
Childcare is one area where changes have already been announced which will be rolled out from early 2017. Parents who are already members of the current Child Care Voucher system can continue in it, providing their employer will still provide access to it; new members will also have the opportunity to join the current scheme up until April 2018.
The new system, called ‘Tax-Free Childcare’, will be available online and the State will contribute 20p for every 80p that parents spend on childcare. The maximum State contribution per year will be £2,000 per child (or £4,000 for disabled children). Parents must be in work to qualify and earning just over £100 per week, but no more than £100,000 per year.
Whether you are better off with the old or new scheme depends on how much you earn, how much you spend on qualifying childcare and how old your children are. It will only be available to parents with children up to the age of 12 (17 if disabled), whereas the current system is available to children up to age 15; so those with older children will lose out.
There will also be no NI saving under the new system, therefore employed parents with lower childcare cost could be worse off. However, it is available to everyone, so is good news for those who work for companies that don’t offer the voucher system and the self-employed.
The Government has confirmed that some salary sacrifice benefits won’t change including employer pension contributions, employer-provided pension advice, provision of workplace nurseries and cycles and cyclist’s safety equipment provided under the cycle to work scheme.
It has not been confirmed what else will be hit by the changes, but schemes for life insurance, mobile phones, cars, parking, life insurance and medical insurance could all come under threat. Any changes could have a massive knock on effect on all employees, but I fear it will hit mid and lower paid workers the most, who rely on the savings generated to afford these benefits.