Salary sacrifice schemes must be HMRC compliant following report
The tribunal in question, Reed Employment Plc and Others v HM Revenue and Customs (HMRC), involved payments to employees working for clients on short-term assignments, who received travel and subsistence allowances which were used to reduce their salaries after which income tax and National Insurance was paid on the reduced amounts.
The tribunal found that the employer’s reduction in the salary was not effective. It ruled that income tax and NI should have been paid on salary prior to the reduction for the travel and subsistence allowances. Additionally, one of the key points raised was the apparent lack of clarity in what was communicated to employees.
David Brockwell, Finance director at Tusker, said: 'While we believe this case has little direct correlation to salary sacrifice car schemes per se, the principle IS accurate. Such schemes need to be properly constructed and implemented, have total transparency and be effectively communicated to all employees.
'If the salary sacrifice scheme is not correctly introduced, there may be serious tax, pensions and employment law implication, which is why working with an experienced provider is so essential,' he added.
'Having implemented over 70 live schemes, we know that transparency and effective communication is all important. Successful communications methods, in our experience, include salary sacrifice roadshows, internal company magazines, emails and flyers.
'Employers need to appreciate that by introducing a salary sacrifice car scheme, they must change an employee’s terms and conditions of employment. They will also need to think about how the sacrifice will be incorporated in to payroll and what additional reporting needs they may have,' he said.
One of the biggest risks a company faces is being left with early termination charges if an employee in the scheme resigns or is made redundant; and there are also excess mileage charges and parking fines to consider.
Working with an experienced provider, like Tusker, means that all these issues will be discussed at the implementation stage and robust processes put in place, so that all risks are minimised for the employer.
'With each of our schemes, we ensure they are all HMRC compliant and the salary sacrifice calculation is built into our online fleet management system, Fleetdesk4, which allows all employees to see a clear breakdown of all costs and savings when selecting their new vehicle, along with any options.
'It is imperative that an employee has an accurate picture of the costs involved so they are able to make an informed decision. This is especially true if the salary sacrifice they make takes them from a higher tax band into a lower one, or even takes them below minimum wage, as this would make them ineligible to have a vehicle on the scheme,' added Mr Brockwell.