LONDON: The UK Government has been urged to ensure low-income taxpayers can also benefit from the retention of tax perks for certain salary sacrifice arrangements.
Chancellor Philip Hammond announced in the Autumn Statement that the tax and National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for certain approved arrangements such as those for childcare vouchers, for pensions, for the cycle to work scheme, and for ultra-low emission cars.
The Low Incomes Tax Reform Group (LITRG) has warned however that where these approved benefits in kind are offered through salary sacrifice arrangements, employees with earnings at or near the minimum wage cannot participate because an employee’s cash earnings cannot be reduced below the minimum wage rates. This, LITRG says, leaves them at a disadvantage in comparison to, say, a colleague doing generally the same work but with slightly higher earnings. LITRG pointed out that the UK Government’s proposals were intended to simplify the existing rules and promote “fairness.”
Robin Williamson, Technical Director of the Low Incomes Tax Reform Group (LITRG), called for the National Minimum Wage Regulations to be amended to allow employees on the minimum wage to use approved salary sacrifice arrangements. He said: “Without such a change, the fairness the measure is intended to achieve does not extend to those on the lowest earnings, particularly considering that childcare vouchers and similar approved arrangements might be vital to low-paid workers and that the ‘risks’ to such employees of using salary sacrifice are largely overstated.”
“With the correct information about the effects that a reduction in their pay might have on their entitlement to benefits and so on, they should be able to make their own decision independently of their employers, and without being influenced by extraneous tax considerations.”
