HMRC is reportedly planning to introduce three changes to National Insurance contributions and salary sacrifice schemes. The Labour government’s tax division, HMRC, has initiated a review into salary sacrifice schemes, which allow employees to exchange part of their salary for non-cash benefits like pension contributions or childcare vouchers.
As part of this research, HMRC is exploring three possible changes: removing National Insurance (NI) exemptions for both employers and employees; eliminating both NI exemptions and income tax relief for employees; and scrapping NI exemptions only on contributions exceeding £2,000 annually, reports Birmingham Live. These proposals could significantly impact how salary sacrifice arrangements are taxed, potentially reducing their financial advantages for both workers and businesses.
Norton Roseful added: “The suggestion that the Government might be considering an overhaul of the salary sacrifice system for pension contributions has caused concern.
“The principal advantage of the current system (although it is not offered by all employers) is that pension contributions are made pre-tax and many employers use the NI savings to boost their employees’ pensions in some way.
“It is far from certain that HMRC has any intentions to reduce the tax advantages of salary sacrifice but with a Chancellor reportedly looking to make up a multi-billion pound hole in the public finances in her Autumn Budget, the suggestion is that changes to salary sacrifice could be considered as a potential revenue-raising measure.”
“It is very revealing that HMRC has paid for research into the likely response from employers if salary sacrifice for pensions were to be scaled back,” said former Liberal Democrats Pensions Minister Sir Steve Webb, now a partner at LCP.
“With a chancellor reportedly looking to make up a multi-billion pound hole in the public finances in her autumn budget, this research suggests that changes to salary sacrifice are firmly on the agenda, and likely to be considered as a potential revenue-raising measure.”
A Treasury spokesperson said: “These claims are totally speculative. HMRC regularly commissions independent research on all aspects of the tax system.
“We are committed to keeping taxes for working people as low as possible which is why, at last autumn’s budget, we protected working people’s payslips and kept our promise to not raise the basic, higher or additional rates of income tax, employee national insurance or VAT.”
