Salary sacrifice schemes to lose their tax breaks

"Salary sacrifice" schemes, under which employees give up part of their salary for a non-cash benefit, are to lose their tax advantages, under one of the proposals announced by the Chancellor, Philip Hammond, in his Autumn Statement today.

Schemes such as gym memberships enable employees and employers to pay less tax on the value ofthe benefit provided. Mr Hammond described this as "unfair", and plans to abolish them from the 2017-18 tax year.

However there will be exemptions for schemes covering pensions, child care, ultra-low emission cars and cycling to work.

Nick Willis, director and solicitor at accounting firm PwC, commented: "Salary sacrifice arrangements form part of employees' terms and conditions. Employers will therefore need to look urgently at these arrangements and the contractual promises they have made to assess whether, and how, benefits will be continued post-abolition of salary sacrifice. Difficult issues will arise on who will bear any increased cost in benefit provision and whether an employer has the flexibility to cease providing a benefit that has become prohibitively expensive."

Other measures announced by the Chancellor include:

• the national living wage to rise from £7.20 to £7.50 an hour from next April;
• equalisation of employee and employer national insurance thresholds at £157 per week, also from April 2017;
• a small reduction, from 65% to 63%, in the rate of clawback of universal credit when claimants start work;
• no further welfare cuts during the present Parliament.

In addition, the main annual Budget announcement will in future take place during the autumn rather than the spring, when a statement similar to the present Autumn Statement will be made instead.