There’s been a long established principle that where an employer provides an employee with a benefit which can be converted back to salary in the same year of assessment, then the benefit has been given a money’s worth and should be subject to tax via the payroll. (Heaton V Bell principle).
Traditionally speaking and the only exceptions to this rule has been so called lifestyle changes i.e. births, marriages, deaths, redundancies etc..
However, based on new guidance issued by HMRC, insofar as applies to:-
- Employer provided childcare
- Workplace parking
- Employer provided cycles and cycle safety equipment
HMRC have stated
“ it is not necessary to stipulate a period for which the arrangement must be entered into or set out “lifestyle changes”.
This being the case HMRC are only interested in making sure that there is a true variation in the employees terms and conditions of employment each and every time there is a change in circumstances affecting the provision of the benefit.
The above list covers the primary benefits for which the salary sacrifice is usually applied. This guidance should therefore, if applied consistently throughout HMRC, lead to a reduction in complexity of the drafting of such schemes rules/ policy documents.
For all other benefits the Heaton v Bell principle remains in effect.
In addition to the above, HMRC have also commented on the expected changes to the employees pay slip following a salary sacrifice.
HMRC have stated that when reviewing a salary sacrificed they will look first to the employment contracts to ensure that there has been a true variation in its terms and conditions. If this is the case then the information contained on the payslip, so far as salary sacrifice is concerned, is irrelevant.
However, if there is any ambiguity regarding the variation of the employee's terms by way of the contract review then HMRC will seek clarification from other sources. This may include a review of the information shown on the employee's payslip, both before and after the salary sacrifice takes effect.
We would therefore continue to advise caution in this area and to ensure that you have adequate documentation to support your actions should HMRC come calling!
If you have any issues you would like to discuss regarding these matters then please call us on 02392 001 251 as we would love to help.
